Europe Economy

Alive and Kicking: Germany's Tax Cuts Debate

Crisis? What crisis? ….. That seems to be the message German Chancellor Angela Merkel wanted to send out after a top-level coalition meeting in Berlin last night.

Angela Merkel

The talks between Merkel and the respective heads of the other two coalition parties – Horst Seehofer for the Christian Social Union (CSU) and Guido Westerwelle for the Liberals (FDP) - were headlined as "Crisis Summit" by the media.

And – tying in with the a TIME Magazine cover story about Merkel and her coalition woes AND sudden market rumors about her pending resignation last week – these talks in the chancellery last night seemed to gain more importance than should have  REALLY been accorded them.

So it's hardly surprising that the outcome of this meeting was exasperatingly meager. The talks had taken place "in the best atmosphere", Merkel said last night; and that's all the official statements that were to be had.

Merkel had done her level best to settle the festering tax debates within her tri-party coalition ahead of the weekend's meeting by publicly declaring that the tax cuts laid down in the coalition treaty would indeed been delivered.

That should have appeased the rebellious Liberals who keep hammering home that one mantra "tax cuts, tax cuts, tax cuts" as the one and only cure for the German economy.

It SHOULD have, and for the time being it has. But the cameras hadn't quite turned away from the collective smiles and the "in the best atmosphere" declaration, when prominent CDU members pointed out that "whoever was demanding tax cuts will also have to provide plans to finance them." Which is, of course, something economists also keep pointing out.

"Let's face it, with the budget and debt situation – not only in Germany, but also in the rest of Europe and indeed the world – it's very unlikely that any country can grow itself out of the debt pit", said Alexander Kockerbeck, senior analyst for sovereign debt at Moody's in Frankfurt.

And THAT means tax cuts will remain a questionable and expensive remedy for curing the German economy.

In any case, Frau Merkel will have to brace herself for an ongoing trench war within her tripartite coalition about the course Germany is supposed to take in order to steer itself out of the economic crisis. AND for a bumpy three years in her second term in office.