Schroeder plans tax cuts to revive economy

BRUSSELS JUNE 26. The German Chancellor, Gerhard Schroeder, has intervened to resolve a dispute among his Cabinet Ministers and the ruling coalition over the tax cut strategy and succeeded in evolving a "consensus strategy" in order to deal with the country's growing economic crisis.

The crisis was highlighted by the strike by workers in the automobile manufacturing sector in East Germanyand the forecast by IFO, the prestigious economic institution, that Germany is headed for zero growth.

Mr. Schroeder, known as a "bold pragmatist", said the strategy is to first improve Germany's competitive edge by lowering cripplingly high labour costs, which the Government and the business community believe is a major handicap in economic growth.

Despite therising unemployment, strikes and recessionary trading conditions, the German economy, which is often rated as the "locomotive economic power" of the European Union, is now desperately trying to cope with the 18 per cent rise of the euro against the dollar, which is eroding the country's competitive edge in the global market place.

Exports rescued the German economy from recession last year, accounting for one third of the Gross Domestic Product.

But according to the IFO, the unemployment rate will hover around 10 per cent by the end of the year while a European Central Bank report released on Tuesday indicated continuing decline in industrial production.

German economists attribute the current economic stagnation to reluctance by successive Governments to combat the rising cost of the very generous health, pension and unemployment benefits.

The trade unions, led by the powerful IG Metalle — the second largest in the country, are now facing intense criticism for triggering a regional strike that has caused disruption across the country.

The unions indicated on Thursday that they may suspend the walkout by German workers in key automobile parts manufacturing plants in East Germany.

With the European Union expanding from the current 15 to 25 members by next year, it is possible that German companies may shift manufacturing sites to Poland and the Czech Republic, where highly skilled and disciplined workers are available.

Volkswagen has recently moved part of its manufacturing plant to Slovakia where a skilled worker earns $380 a month, or 15 per cent of the average level in the E.U.

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