Eichel Presents EU-Friendly Budget

German Finance Minister Hans Eichel presented his plan to make up for an unexpected €10 billion ($12.9 billion) budget shortfall and bring the German economy in line with EU stability criteria Thursday.

To this end, the minister said, he plans a pay freeze for civil servants, an additional workday for all Germans, and securitization of Deutsche Post and Deutsche Telekom pensions, along with several other measures.

The package met with criticism from many quarters, and the plan to get rid of a key German holiday unleashed a political firestorm.

Mineral oil, tobacco to blame

Tax revenues for 2004-2005 fell some €4.8 billion short of previous forecasts. In addition, the budget needed to be adjusted for an additional €3 billion in spending on the job market.

The federal government will be hit especially hard by the measures; the individual states got off relatively lightly, and local governments even got additional funds.

Eichel blamed the lower-than-expected tax revenues on reduced mineral-oil and tobacco taxes, whereby local governments booked "superb increases in commercial taxes," the finance ministry told news agencies.

Despite the decline, the ministry said the government "is still holding on to its 2005 goal of having a budget deficit that will again return to below" the 3 percent euro-zone criteria.

Controversial plan

A big part of the government's plan to plug the hole in its finances will be achieved by selling off pension liabilities at Deutsche Post and Deutsche Telekom, two semi-private companies.

Many Post and Telekom workers are effectively civil servants, and their retirements must therefore be paid by the state. In compensation, the two companies are supposed to pay into Eichel's coffers €18 billion. The state will then convert these expected revenues into securities and sell them to investors, generating a further €5.5 billion.

The part of the plan that has generated the most controversy was the move by Eichel and German Chancellor Gerhard Schröder to shift the Day of German Unity holiday from Oct. 3 to the first Sunday in October. The government calculated that the extra day of work each year is worth annual GDP growth of 0.1 percent, that is, increased tax revenue.

Critics speak out

Criticism of the plan came from opposition politicians as well as affected organizations.

The German civil servants association, Deutscher Beamtenbund, objected vociferously to the plan. The group's head, Peter Heesen, said such a move would endanger the implementation of the reform package previously agreed to with Interior Minister Otto Schily.

Heesen also noted that civil servants already accepted benefits cuts as well as longer work hours in 2004.

Also strongly opposed to the plan to meet the EU criteria was the BdB association of German banks.

"The consolidation of federal finances is an urgent task facing Germany," BdB head Manfred Weber told news agencies in Berlin. "But the proposal that the government submitted is just a quick fix."

While group said moving a holiday could indeed help long term growth, it criticized the plan for pushing current debt off to future budgets. This is not a good solution for the current structural problems, Weber said.