Deficit defense

Speaking in parliament on the second day of a four day session to debate her government's 2010 budget proposals, Chancellor Angela Merkel said plans to ramp up the country's new debt by 86 billion euros ($123 billion) were "the right thing to do."

Germany is struggling to climb out of its worst recession since World War II and has invested enormous sums to stimulate the country's flagging economy.

Defending that strategy, Merkel said "we want Germany to emerge stronger from this crisis than it was when it went in."

"We have managed to do the right thing to prevent falling into the abyss. As much as we would wish another situation, we are equally bound to look reality in the eye," the chancellor said.

The draft budget, proposed by Finance Minister Wolfgang Schaeuble, foresees the highest deficit in Germany's post-war history. Total expenditures for 2010 are expected to reach some 325 billion euros; 33 billion euros more than last year. The largest, single outlay at nearly 147 billion euros is earmarked for social services.

Schaeuble warned that public spending would be cut in 2011 and said "grave decisions lie ahead."

Responding to the government's budget and tax-cut plans, opposition Social Democrat parliamentary leader, Frank-Walter Steinmeier, accused the coalition of "complete and utter failure" in its first 100 days in office and of "having its head in the clouds."

Steinmeier said the government, in an attempt to satisfy its clientele, had "gambled away public trust" with its plans to cut taxes and trim programs, while spending more.

Exports still Germany's economic engine

Explaining the necessity of lower taxes, especially for business, Merkel said that Germany, long the world's top exporter before being overtaken by China in 2009, would have to rely on its traditional industrial strengths to pull itself out of the crisis.

"Germany will only be able to secure its prosperity when it remains a strong exporting country," Merkel said. "What made us strong - the chemical and automobile industries, medical equipment, transport technology - must be continued and should never be given up," she added.

Merkel said the goal of her government was to bring the economy "intelligently out of the slump" and defended controversial tax cuts agreed on by her center-right coalition. The chancellor said she aimed to have the economy back to its pre-crisis growth levels by 2013.

The German economy contracted by 5 percent in 2009. Later this month, the government is expected to officially revise its growth forecast upwards for 2010, from 1.2 percent, to 1.5 percent. Some economists, however, are even predicting that the expansion rate could top 2 percent this year.

gb/dpa/AFP/AP
Editor: Rob Turner