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Merkel urges Germans to make sacrifices

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BERLIN, Nov 12 (AFP) - Incoming chancellor Angela Merkel called on Saturday for Germans to make sacrifices to help put their struggling economy back on track, but her future government's policies were already under fire.

Announcing the details of an agreement for a power-sharing administration which was struck on Friday, conservative leader Merkel said Germany must face up to a period of austerity.

"We know that with this coalition pact we are expecting a lot from people," she told a press conference.

Merkel said that controversial measures such as raising value added tax (VAT) to 19 percent from its current level of 16 percent were "honest" and necessary to inject new life into an economy which is still the biggest in the European Union, but which is stagnating badly.

"I foresee that Germany should in ten years' time be able to say it is back among the top three countries in Europe," she said, in reference to moribund growth which puts the country near the bottom of the league among EU nations.

The VAT rise is one of the key measures to bring the spiralling budget deficit back within EU limits in 2007.

The government wants to make savings, or earn extra revenue, of 35 billion euros (41 billion dollars) to meet that target.

The other key aim is to bring down a jobless rate of 11 percent.

"I know that the success of this grand coalition will be measured by whether there are more jobs in Germany in a few years' time," Merkel admitted.

The agreement on the coalition programme between Merkel's Christian Democrats and the Social Democrats of outgoing chancellor Gerhard Schroeder must be approved by party congresses on Monday.

Their green light would pave the way for the parliament to make Merkel Germany's first woman chancellor on November 22, more than two months since an inconclusive general election left the country in political limbo.

There is little optimism at the coalition pact, either from the press or industry leaders.

"The coalition deal is a declaration of bankruptcy," the top-selling Bild newspaper said.

An editorial said taxpayers were being made to pay for the mistakes of successive governments.

"The two big parties which, in doing nothing to tackle the situation in recent decades, have brought the country to the point of bankruptcy, are making us, the people, pay for their mistakes."

The centre-left Berliner Zeitung newspaper labelled the agreement "a big disappointment" and said it offered few long-term solutions.

"It is hoped that this coalition pact will only be temporary and that this government realises once it takes office that the agreement cannot last for long," it added.

Industry leaders and analysts said they feared the deal would further dampen consumer spending.

"Tax hikes are likely to depress consumers," UBS economist Holger Fahrinkrug said.

Opposition parties also directed their fire at the tax policy.

Guido Westerwelle, the leader of the pro-business Free Democrats with whom Merkel had originally planned to form a coalition government, said: "The trademark of the grand coalition is the biggest rise in taxes in the history of the republic."

The widely unpopular VAT hike will be used partly to bolster the strained finances and partly to bring down non-wage labour costs to promote hiring of staff.

The Social Democrats managed to force through a higher tax rate for top earners in the face of conservative opposition.

The retirement age will be increased to 67 from 65 and the percentage of salary earmarked for the state pension system will be upped.

Foreign policy goals are vague, with a promise to improve relations with the United States which were weakened over German opposition to the Iraq war, and strengthen ties with EU partners.

The parties also accepted a neutral approach to Turkey's bid to join the EU.



COPYRIGHT 2005 Agence France-Presse. All rights reserved.

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