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Wednesday, June 23, 1999 Published at 16:26 GMT 17:26 UK

Business: The Economy

Germany's radical economic revival plan

Chancellor won argument for "economically indispensable" cuts

The German cabinet has approved an ambitious package of taxation and spending reforms intended to lift Europe's biggest economy out of the doldrums and help stabilise the euro.

The plan - presented by Finance Minister Hans Eichel - includes big cuts in government spending, lower corporate tax rates and controversial reductions in welfare payments.

Victory for Schröder's modernists

Gerhard Schröder, the Chancellor, said 30bn Deutschmarks (£10.25bn) would be cut from the state budget next year, and that business tax cuts worth 8bn DM (£2.75bn) would help stimulate the economy.

[ image: Schröder:
Schröder: "Biggest German reform package"
But reductions in state pension payments and unemployment benefit, as part of the government spending cuts, have proved unpopular. There are also hefty cuts in state industrial subsidies.

Nevertheless, Mr Schröder was upbeat, calling the plan the biggest economic reform package in German history. Its approval marks a victory for his centre-left coalition over traditional left-wingers in the party, who expressed strong misgivings.

Bolster the euro

Weakness in the German economy - where growth is trickling along at 1.5% and unemployment appears entrenched at around the four million mark - has been cited as a major factor in the decline of Europe's single currency since its introduction on 1 January.

As well as helping to kick-start the sluggish economy, the reforms are necessary to ensure Germany satisfies the Maastricht criteria for membership of the single currency.

The government's net borrowing requirement is forecast to fall by 4bn DM to 49.5bn next year, with a balanced budget by the end of the next parliament in 2006.

The German parliament, the Bundestag, is expected to pass the plan with minimal, if any, changes when it comes up for its final vote in the autumn.

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