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Last Updated: Friday, 27 June, 2003, 12:44 GMT 13:44 UK
Germany set to defy EU on tax

By Ray Furlong
BBC Berlin correspondent

Gerhard Schroeder
Mr Schroeder has promised tax breaks for car workers
A meeting opened at an 18th Century chateau near Berlin on Saturday that could further threaten the credibility of the European Union stability pact.

The German government is already in breach of the pact - the EU's mechanism for keeping public debt levels in check and therefore maintaining the stability of the euro.

But it is considering making tax cuts, effective from 1 January next year, which would almost certainly put it in breach for a second year - and quite possibly also for a third.

Gustav Horn, of the German Institute for Economic Research, says the German government has learned the pact "doesn't work" when economic growth is weak.

"Who looks at the Stability Pact in Europe? France neglects it, Italy neglects it, and Germany will neglect it too, because you can't go on with it," he says.

"It's the wrong strategy."

Many now see the tax cuts as inevitable.

Schroeder pledge

Earlier this week, the tabloid newspaper Bild ran a headline saying the average German household would be more than 1,000 euros a year better off.

Bush is dealing out pork to big lobby interests, whereas we try to reform our welfare system
Reinhardt Buetikofer, Green Party

Another idea that has been under discussion is to scrap Germany's many tax exemptions.

But Chancellor Gerhard Schroeder, with his usual flamboyance, promised Ford workers in Cologne that their tax breaks for night work would not be affected.

Critics say Germany is now following a similar policy to George Bush in America, running up debts for tax cuts it cannot afford.

Economic boost

Not so, says Reinhardt Buetikofer, co-leader of the Green Party.

"Bush is dealing out pork to big lobby interests, whereas we try to reform our welfare system," he says.

"Bush is prioritising tax cuts for the upper percentile of the population, whereas we try to reduce the tax burden for the average taxpayer.

"I think they are two important differences."

The EU warned Germany this week not to count on its support if the country's budget proposals break the rules.

But Germany wants to get its economy moving again.

And amid unpopular economic reforms announced earlier this year, tax cuts might be just the thing.




SEE ALSO:
German budget '15bn euros short'
25 May 03  |  Business
German businesses predict recovery
25 Jun 03  |  Business


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