Bonn Fails to Pass Austerity Budget

By Carl-Erik Isacsson, Militant, Vol.60 no.29, 19 August 1996

STOCKHOLM, Sweden—The lower house of Germany's parliament (Bundestag), voted for major cuts in social programs on July 10 and 11. It approved raising the retirement age, cutting sick pay and pensions, reducing unemployment benefits, postponing an increase of payments to workers with children, and making it easier for small businesses to fire workers.

But less than two weeks later, the upper house of parliament rejected the plan.

German finance minister Theo Waigel said the cuts are necessary to bring the budget deficit below the ceiling of 3 percent of the country's gross national product. European Union members are required to meet this standard by 1997 in order to join a projected common currency.

Bonn is pushing these austerity measures as the German economy is entering another recession after a three-year upturn in the business cycle during which unemployment steadily rose to more than 11 percent. Joblessness has been much higher in East Germany where two-thirds of factory workers have been unemployed since 1990. Bonn has been pouring more than $100 billion a year in the East, much of it for relief and make-work programs, to quell accelerating unrest over economic and social conditions there. The proposed budget cuts include a reduction in these payments for eastern Germany.

More than 100,000 workers across Germany protested the parliament's decision in demonstrations and strikes on July 10. In mid June 350,000 workers had marched in Bonn against the federal austerity package.

The deep austerity measures of Chancellor Helmut Khol's government caused new headaches for the French rulers. German budget puts pressure on Paris; France may have to try harder to meet Maastricht criteria for monetary union, read the headline of an article in the July 15 Financial Times of London.

French premier Alain Juppe''s austerity plan could bring Paris's budget deficit to some 4 percent of France's GDP.

But if Bonn, in the words of a French newspaper, is set on being Europe's ‘best pupil’ by doing its utmost to ensure its deficit really is 3 percent, is there not a danger that France will similarly have to be seen to be trying harder when it presents its 1997 budget in September? asked the Times.

The trouble is that the Juppe' plan already provoked the biggest labor mobilizations against capitalist austerity last November and December since the May 1968 revolt in France. The prospect of pushing for even deeper cuts raised the specter of new social explosions—which the French employers and government are not looking forward to.

The German rulers are also nervous about mounting labor resistance. On July 20, Germany's Bundesrat, the upper house of parliament, rejected the government's austerity package. It sent the measure to a parliamentary arbitration committee. This vote may delay a final deal for at least two months. The Bundesrat is elected by the 16 state governments and is dominated by the Social Democratic Party (SPD). Oscar Lafontaine, SPD leader, made it clear, however, that his party has no intention of blocking Khol's plan.

All the capitalist governments in Europe are on the lookout for an upturn in the business cycle. Without that there is no possibility that either Germany or France will meet the 3 percent deficit criteria for EU monetary union. But the government policies of pushing for the elusive common currency are threatening to increase unemployment, accelerate deflation and the looming downturn in the business cycle, and even trigger a major financial collapse.

Adolf Roth, the budget expert of Kohl's Christian Democratic Union, was quoted in the Financial Times warning, The budget contains no reserves to deal with the unexpected.