Hans Eichel Under Pressure To Finance A German Election Boomlet

by Ulrika Lomas, Tax-News.com, Brussels

22 January 2002

German Finance Minister Hans Eichel is about to face his biggest test as Germany's economy heads south at the beginning of an election year, a Maastricht-busting budget deficit beckons, and he is surrounded by politicos eager to spend their way to retaining power.

Before becoming federal finance minister, Mr Eichel was prime minister of the state of Hesse, but after losing power there in 1999 he replaced the accident-prone Oskar Lafontaine, who made more enemies in a short space of time than anyone since Attila the Hun. Hans Eichel, by contrast, has got everything right.

Once in power, Mr Eichel got to work on the most radical tax cuts in the history of post-war Germany that came into effect last year, designed to spur Germany's sluggish economy, while boosting competitiveness and improving the government's financial position. By 2005 the cuts will have reduced the overall tax burden in Germany by more than EUR25 billion.

He has been a prudent financial steward, as well. In the summer of 2000 he produced EUR50 billion from the auction of third-generation mobile phone licences, but dismissed expectations of a public spending spree and put the money towards financing pension reform and lowering the federal deficit.

Yet by late 2001 Mr Eichel had to present euro-zone finance ministers with a budget forecast showing reduced growth and increased borrowing, with a balanced budget unlikely until 2006. The European Commission expects Germany's budget deficit to climb to 2.7% of gross domestic product this year from 2.5% last year, the highest in the 15-nation European Union and close to the 3% ceiling set in the Stability Pact.

The German economy is expected to languish for most of this year; unemployment rose every month last year and is expected to breach the four million level any moment now. Bundesbank president Mr Ernst Welteke has admitted that the German economy probably fell into recession in the second half of last year.

Mr Eichel is more optimistic and insisted this week that recessions are mainly found 'in people's heads but not in the economy itself'. But he is not necessarily an asset at election time: after three years in office he has been called everything from 'a paperclip with glasses' to 'a man with all the charisma of a plate of cold spaghetti'. It just doesn't seem his style to deliver finely-spun Brownian tax increases disguised as welfare benefits. So much the better for Germany, but who wants to know when the voters are about to throw you out? Perhaps poor Mr Eichel ought to seek a berth with Mr Stoiber?

'I don't want to deny that it will be much more difficult this year to keep to budget plans,' says Mr Eichel, sadly.

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