German chems see positives in €80bn domestic budget cut

08 June 2010 19:46  [Source: ICIS news]

TORONTO (ICIS news)--Germany’s chemical industry on Tuesday welcomed Chancellor Angela Merkel’s €80bn ($95bn) proposed budget cut package as a first step to get the country out of a "debt trap".

Germany’s drastic savings plan – over four years – comes as other countries, including the US, were urging Europe’s largest economy to spend more to help maintain the global recovery.

Frankfurt-based chemical industry trade group VCI said in a first reaction that it saw the need for "rigorous saving".

However, the government needed to make sure it did not take measures that slowed down growth and tax revenues, the group said.

VCI said it welcomed the government's exemption of education and research from the cuts.

But it was highly critical of plans to reduce producers’ breaks on energy taxes, it said.

For Germany’s energy-intensive chemical industry, affordable electricity prices were a critical factor in maintaining and building out production in the country, the group said. Despite the breaks, Germany’s electricity prices were still above European and international levels, it said.

Also, the tax breaks had been tied to targets for industry to reduce its greenhouse gas emissions, VCI said.

Germany’s chemical industry, for its part, had reduced its greenhouse gas emissions by 37% from 1990 to 2008 – ahead of the government's targets, the group said. The industry had done its part and now expected politicians to stand by the earlier deal, it added.

VCI represents about 1,650 Germany-based chemical firms, employing over 416,000 workers.

Meanwhile, Germany’s chemical and energy union IG BCE said the cuts by Merkel’s coalition government would primarily hit society's most vulnerable.

Instead, the union called for higher marginal taxes for high-income earners and higher taxes on capital gains, among other measures.

It said it welcomed, however, the government’s plan to impose a levy on banking and financial transactions.

Commentators noted that the government's measures would reduce social security spending and unemployment benefits, while there would be no reductions in pensions and no increases in income tax.

The planned tax on financial transactions would depend on whether Merkel could get support for it at the upcoming G20 summit in Toronto later this month, they said.

Also on Tuesday, Germany’s federal economics ministry reported that the country’s production rose 0.9% in April from March, after a revised 4.3% increase in March from February.

Industrial orders rose 2.8% in April from March, after a revised 5.1% increase in March from February, the ministry said.

The ministry expected continued recovery and improvement in industrial production in coming months, it said.

Dow Chemical said earlier on Tuesday it saw strong demand in Germany, despite the uncertainty over the decline in the euro currency and the debt crisis in southern Europe.

Dow employs a staff of 6,000 in Germany, its second largest market after the US, according to its website.

According to VCI’s projections, Germany’s chemical production will increase 8.5% in 2010, after a 10% decline in 2009 from 2008.

($1 = €0.84)

Read Paul Hodges’ Chemicals and the Economy blog
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By: Stefan Baumgarten
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