EU states to carry can for crisis for at least 10 years, says Merkel

TAX ROW:CHANCELLOR ANGELA Merkel has warned that the euro zone crisis is likely to be a financial burden on EU member states for at least a decade, ahead of tax cut talks with her coalition partners in Berlin last night.

Dr Merkel’s warning, in a weekly podcast, seemed directed at her junior Free Democrats (FDP) as they increase pressure on the German leader to cut the tax burden in Germany.

“It will certainly take a decade until we are in a better position again,” said Dr Merkel, warning that the “debt crisis won’t simply go away”.

Amid rising German tax revenues the FDP is anxious to deliver on its tax cut election pledge or risk being ousted from the Bundestag in 2013.

FDP leader Philip Rösler is calling for an income tax cut and an end to so-called “bracket creep”, where pay increases shunt workers into a higher tax bracket and reduce rather than increase take-home pay.

Officials close to Dr Merkel, wary of tinkering with the complicated income tax system, have proposed instead reducing the 3.75 per cent “solidarity surcharge” introduced on all income and corporate tax to finance post-unification reconstruction.

The mood in the coalition has deteriorated further over Dr Merkel’s proposal to end her party’s long-held opposition to a statutory minimum wage.

A party conference will be asked next week to vote on a proposal to set a wage floor in all professions not covered by existing tariff agreements.

Labour minister Ursula von der Leyen has said the move would “end labour market exploitation” but the policy shift, seen as a play by Dr Merkel to centre-left voters, has alarmed the liberal FDP.

It insists the 2009 coalition agreement, rejecting such a proposal, remains the final word on the matter.

“I’m warning the government not to start mixing new labour market concrete,” said Christian Lindner, general secretary of the FDP. It argues that regional differences make it impossible to set a one-size-fits-all minimum wage in Germany.

“Because the rents are higher in Düsseldorf than Dessau, no politician can set the same wages.” Backed by 91 per cent of those polled by a Sunday newspaper yesterday, the proposal has annoyed right-wingers in her own CDU.

“I don’t think much of it,” said Volker Bouffier, state premier of Hesse. “Of course people should earn as well as possible but we cannot set aside the entire economic rulebook.”