02 June 2013

FT: Merkel risks austerity reputation with election spending promises

Angela Merkel, the German leader most often blamed by European and American critics for demanding excessive austerity from the debt-laden states of the eurozone, faces brickbats at home for the opposite reason.

The chancellor is under furious attack from her opponents in the German general election campaign for promising what they see as overgenerous tax concessions and spending handouts to voters. At the same time she has caused alarm among members of her own centre-right coalition.

Sigmar Gabriel, leader of the centre-left Social Democratic party, accused Ms Merkel at the weekend of “electoral fraud” in putting forward proposals that could cost – according to calculations in the media – up to €28.5 billion. She would never be able to deliver on her promises, he said.

Ms Merkel suggested that raising child allowances and tax thresholds, increasing pensions for stay-at-home mothers, and investing more money in new infrastructure, would be part of the party’s election platform. She also proposed curbing rent rises in the property market, a move hitherto resisted by the ruling party. The ideas are not yet part of the CDU election manifesto, which will be finalised at a party conference this month. But the emphasis on social spending and infrastructure investment, including providing universal wireless access to the internet, was clearly designed to steal the centre ground from the SPD.

Mr Gabriel said the chancellor had created the impression that everyone else in Europe must make savings, while she was proposing to spend more. His party manifesto also calls for more spending based on increased taxation for top income earners.

Philipp Rösler, vice-chancellor and economy minister in Ms Merkel’s cabinet, and leader of the liberal Free Democrats, called for caution. “Social spending promises, such as those now proposed by the CDU, must be affordable”, he said. “I would strongly advise sticking to the solid ground of economic sense.”

Wolfgang Schäuble, Ms Merkel’s close ally as finance minister, was more diplomatic. He insisted that there was some room for manoeuvre on spending because of the government’s fiscal caution but said the government was not planning to change its strategy of “growth-friendly consolidation”.

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