BERLIN (MNI) – German Chancellor Angela Merkel Tuesday defended her
budget consolidation program, arguing that it will stimulate economic
growth rather than hinder it.

Bringing down elevated public deficits will create confidence
amongst citizens, thereby boosting private consumption, Merkel argued in
a speech at a conference of the German Chamber of Industry and Commerce
(DIHK).

“People are more willing to consume if they have the impression
that we care for the future,” she said.

The Chancellor said she had told US President Barack Obama in a
telephone conversation on Monday that budget consolidation “is
absolutely important.”

Referring to media reports that German federal net new borrowing
this year will come in between E15 to E20 billion below the E80.2
billion projected in the 2010 federal budget bill, Merkel said that even
“E60 billion is still too much.”

The Finance Ministry on Tuesday reaffirmed its projection of
federal net new borrowing of some E65 billion this year.

The recent loss of the government coalition majority in the upper
house of parliament, the Bundesrat, won’t have a marked impact on the
government’s consolidation plans, the Chancellor asserted.

Only one or two consolidation measures hinge on the approval of the
Bundesrat, Merkel explained. “Budget consolidation can be achieved for
the most part without the approval of the Bundesrat,” she said. The
Bundesrat represents Germany’s 16 states.

Turning to debt problems in the whole of Europe, Merkel reckoned
that the EU with its two rescue packages “has done nothing more than to
buy time.” Now it is essential that EU member states reduce their
deficits and undertake the necessary structural reforms, she said.

The chancellor praised the merits of the common European currency,
stressing that Germany will fight to assure a stable euro. Germany will
also see to it that the European Central Bank does not lose its
independence, she said.

Merkel described the current economic environment as “very good”
for Germany, pointing to “relatively low interest rates, good export
prospects and reasonable unemployment numbers.”

The DIHK’s latest forecast of 2.3% German GDP growth this year “is
an important sign which can give us courage,” Merkel remarked. The
government’s latest GDP forecast stands at +1.4%.

–Berlin bureau: +49-30-22 62 05 80; email: twidder@marketnews.com

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