Germany Introduces Austerity Measures

The German government has announced a package of spending cuts intended to keep the country's sovereign debt in check. Chancellor Merkel says Germany needs to save around $100 billion over the next four years. She also hopes other countries using the euro will follow Germany's lead and introduce their own austerity programs to help strengthen confidence in the currency.

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Germans are trying to restore confidence in the European currency the euro. That's why German Chancellor Angela Merkel announced budget cuts. By spending 85 billion fewer euros, she hopes to set an example for a continent where many governments are in financial trouble. NPR's Eric Westervelt reports from Berlin.

ERIC WESTERVELT: Cuts include trimming welfare allowances for jobless parents, eliminating 10,000 civil service jobs over four years, and reducing the military, among other measures. German trade unions and members of the political opposition called cuts to the welfare system unjust and short-sighted.

Meantime, some economists call the 85 billion over four years too modest to make a real impact, while other economists, including Phillip Engler of Berlin's Free University, say the cuts risk stifling growth and driving down prices during a fragile recovery.

Professor PHILLIP ENGLER (Economy, Free University): I think it is a real fear, because the problem in Europe is that inflation's already extremely low, and if now European governments all start at the same time to cut their spending, then this will certainly go to deflationary pressure. Nobody really knows what markets really want or what they need and how they react to this signal or that signal. It's all guessing.

WESTERVELT: Engler would've liked a more balanced plan of cuts and strong measures to boost demand and spending, an approach shared by U.S. Treasury Secretary Timothy Geithner, who said over the weekend that European countries, especially Germany, should do more to encourage stronger domestic growth.

Eric Westervelt, NPR News, Berlin.

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