Germany: Green focus in Merkel’s policy package

The Financial Times ^ | 8/25/2007 | Bertrand Benoit

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The German government on Friday unveiled a hefty, and potentially costly, programme of measures for the second half of its term, putting the emphasis on the environment and broadening the social windfall of the economic recovery.

The programme, 50 measures grouped under five policy fields and described by Der Spiegel as “a feel-good package”, would show politics could “shape globalisation” and “consolidate our economic growth”, Angela Merkel, the chancellor, said.

Asked about the cost of the package after a two-day conclave of her government, Ms Merkel said: “We did not conduct a budget discussion . . . We put a lot of ideas on the table but all are conditioned by our pledge to balance the budget by 2011.”

The announcement will still damp hopes among economists of a faster-than-expected reduction in the public deficit. Many are already expecting a public sector surplus this year after state finances returned to the black in the first six months of the year.

Tax revenues have risen much faster than expected in the finance ministry’s mid-term fiscal plan. Ms Merkel’s comments suggest she will use any additional fiscal margin of manoeuvre for more spending rather than accelerated debt reduction.

Subsidies for house insulation will total €2.6bn ($3.5bn, £1.8bn) next year, three times the level of 2005. The package, which targets mainly households and power producers rather than industry, aims to reduce greenhouse gas emissions by 40 per cent of their 1990 level by 2020.

Ms Merkel said the government would increase spending on infrastructure, with a focus on goods transport and logistics, and consider a possible extension of investment subsidies to the former communist east, set to expire in the next few years.

On the social front, she confirmed the government would impose a minimum wage in postal services, consider its extension to the temporary working sector, and introduce new benefits for workers who earn less than the most basic form of unemployment benefit.

Although Ms Merkel said immigration was not a solution to Germany’s skills shortage, the government reached out to business by partially lifting its ban on workers from the 12 new European Union member states working in Germany. The ban will fall for engineers and technicians in the automotive and capital goods sectors in November.

Berlin will also introduce a ministerial review of foreign investments in areas affecting national security and start talks with German banks on building a pool of capital that could be used to acquire blocking minorities in sensitive companies.

“This has nothing to do with protectionism,” Ms Merkel said. “The UK, the US, France have these laws. This is completely standard procedure and perfectly in line with World Trade Organisation and the EU’s single market rules.”