GERMANY: Chancellor Angela Merkel has said that Germany has taken a "turn for the better", nine months after her increasingly unpopular grand coalition took office.
She said further measures, including a cut in corporate taxes, are necessary to secure this economic recovery, but ruled out any further tax hikes after next January's three-point rise in Vat.
"Germany is no longer seen as the sick man of Europe," she said. "We are coming out of the spiral of debt." The German economy, the largest in Europe, grew faster in the second quarter of 2006 than in the last five years. The Bundesbank said yesterday that 2 per cent growth was "possible" in 2006. Unemployment is still high at 10.5 per cent, but is dropping month-on-month.
Dr Merkel praised her predecessor, Gerhard Schröder, who had "done Germany some service" with reforms that have boosted economic growth and driven down unemployment. Other positive influences include an improving world economic situation, company rationalisation, wage restraint and her government's budget austerity measures.
"The grand coalition has taken difficult steps, steps which might not have been possible in another government constellation," she said of the coalition deal she signed with traditional political rivals the Social Democrats (SPD) nine months ago.
Despite the economic upturn, the government's honeymoon is definitely over. Dr Merkel's popularity has fallen 20 points to 36 per cent since January and it has taken the grand coalition just nine months to be as unpopular as the SPD-Green coalition was after seven years.
Dr Merkel blamed what she called unpopular but necessary decisions, such as the plan to increase the retirement age to 67.
"I do what I think is right and important. To orient oneself around surveys would be completely wrong," she said.
Dr Merkel used her first day back from her summer holiday to end lively discussions that began while she was away about long-held policies of the Christian Democrats (CDU).
She dismissed the remarks of one leading CDU state premier that it was time for the party to stop propagating the "big lie" that cutting taxes and non-wage costs for companies automatically leads to more jobs.
"Cutting costs enables German companies to reduce the disadvantages they face against their European competitors," she said, defending the government's plan to cut corporate tax in the coming months to about 30 per cent.
Following the weekend arrest of a would-be German train bomber, Dr Merkel said it was time for Germans to overcome their traditional aversion to security cameras.
On the Middle East conflict, she called for a quick deal to maintain the "fragile" ceasefire, but warned that a long-term solution is impossible without resolving the Israeli-Palestinian conflict.
"There is perhaps too much talk of military solution and too little talk about a political solution," she said in Berlin yesterday.
"We have to come back to the Israeli-Palestinian conflict . . . we have to tackle this at the root." Berlin has ruled out sending German ground troops to Lebanon as part of a UN peace-keeping force, but Dr Merkel said German marines could patrol the Lebanese coast.