In a determined effort to restrain federal spending, West Germany today announced a broad set of austerity measures for next year which include a rise in defense spending that will, however, fall far short of Atlantic Alliance goals.
Outlining a list of planned expenditures and cuts, Chancellor Helmut Schmidt told reporters that West German defense spending would rise by a nominal 4.2 percent in 1982, which will equal the overall rise in Bonn government spending. But after accounting for inflation, this is likely to mean no real increase in the defense budget and perhaps a slight decline. The NATO goal calls for member governments in military spending after inflation.
"We cannot, when savings are being made everywhere, protect one area of the budget artificially," Schmidt said. He recognized, in response to a question, that failure to meet the NATO aim would lead to "complaints and annoyance." But the German leader added that his country had done better in the past than most NATO partners in meeting the 3 percent target. Noting the burdensome economic consequences of high U.S. interest rates, Schmidt said West Germany could not be expected to keep pace with the United States on military spending.
A stagnant economy and diminished international confidence in the mark have force the Bonn government to tighten limits on spending and federal borrowing. Following several days of intensive negotiations between the governing left-liberal coalition parties, Schmidt said there is agreement so far on savings and some additional tax measures worth 14.5 billion marks in next year's budget, or $5.9 billion at current rates.
Another $1.6 billion in savings will be sought in continued talks over the summer. The Bonn Cabinet is due to give final approval to the budget plan during the first week in September.
West Germany's planned 1982 budget represents an increase in spending over this year's budget of several billion dollars up to a ceiling of $98.4 billion, but provides for a sharp cut of 20 percent in the borrowing requirement down to $10.8 billion. The government's aim was to free more money for productive investment and relieve some of the pressure on German money markets resulting from federal borrowing so that the German Central Bank might lower its high interest rates.
Schmidt, who said he was "very satisfied" with the outcome of the budget talks, also reported that German Bank President Otto Poehl, attending a Bonn Cabinet meeting today, had said that the announced figures should help to strengthen the mark and have a positive effect on the West German economy.
There had been speculation the budget negotiations might rupture the 12-year-old government coalition, already strained by challenges within the Social Democratic Party to Bonn's support of NATO missile modernization plans. But the government's closed-door marathon talks this week passed without the appearance of great controversy -- as well as without the drastic spending reductions feared by some smaller West European countries dependent on Germany's economic vitality.
At the same time, the mark slid today to its lowest value against the dollar in nearly five years, trading at 2.47 to the dollar before closing in Frankfurt at 2.46. The drop appeared to reflect international disappointment with early news reports that Bonn's austerity plan would not go far enough, as well as a positive response by traders to the Reagan administration's tax plan success.
Bonn's current budget deliberations have been described by the West German media as the toughest in the 32-year history of the federal republic. For a nation accutomed to steady economic growth -- and to the regular advances in social benefits that came with it -- the idea of having now to make sacrifices in the face of a predicted decline in overall growth this year of 1 percent to 2 percent has gone down hard with the public.
While President Reagan's measures have amounted to a radical reversal in social welfare spending, along with a reassertion of the philosophy of self-help, Bonn's measures so far represent not much more than a long-needed trimming of a still comparatively rich and thick social welfare net.