Germany’s Merkel abandons hope of swift tax cuts after “bitter defeat” in state election

Germany’s Merkel acknowledges “bitter defeat”

BERLIN — German Chancellor Angela Merkel abandoned hopes Monday of pushing through tax cuts for Europe’s biggest economy after what she called a “bitter defeat” in an election overshadowed by the Greek debt crisis. She said her government would now concentrate on keeping Germany’s debt down.

Merkel’s center-right coalition lost control of Germany’s most populous state, North Rhine-Westphalia, in an election Sunday that also erased its majority in the upper house of parliament — making the country harder to run.

“There’s no talking around it — we suffered a bitter defeat,” Merkel told reporters.

The defeat followed a stumbling start for Merkel’s new national coalition government, which took power in October.

It has squabbled constantly over the wisdom of cutting taxes to stimulate the economy and faced sharp criticism for its handling of the Greek debt crisis. Merkel long took a hard line on aid to Greece — which is unpopular at home — but pushed it through parliament last week.

“Many arguments were avoidable,” Merkel said of her government’s first few months.

“The … coalition in Berlin must now set its priorities clearly,” she said. “That means, from my point of view, firstly that tax cuts cannot be implemented for the foreseeable future — discussions about the euro, about (loan) guarantees and a lot of other things show us that.”

“Consolidating the budget will become the priority,” she said.

Merkel said tax cuts likely wouldn’t be possible for at least the next two years.

Early and big tax cuts were a pet project of her junior coalition partner, the pro-business Free Democrats.

However, they are opposed by opposition parties, which will now be able to block legislation in the upper house — a chamber that represents Germany’s 16 states and must approve much major legislation.

Germany has said its budget deficit this year will be more than 5 percent of gross domestic product — above the European Union-mandated limit of 3 percent. It has pledged to get it back under 3 percent by 2013.

“It has become clear to everyone in the last few weeks because of the instability of the euro … what value stable and solid budgets have,” Merkel said. “I think that has become a completely new focus for people.”

“For all the speculation, and all that we want to do against speculation where the euro is concerned, the point of departure is overly high deficits,” she said.

Analysts differed over whether, and to what extent, the Greek crisis damaged Merkel’s alliance in the election.

North Rhine-Westphalia’s conservative governor, Juergen Ruettgers, blamed it as one factor, noting that thousands of one-time Christian Democratic voters apparently stayed home.

“Greece has dominated the last phase of the campaign as people felt uncertain and many had the feeling: ‘Why do we have to help? And where does it end?’” he said.

Frank-Walter Steinmeier of the opposition Social Democrats told n-tv television on Monday that Merkel should learn from the defeat. He said Merkel’s government would no longer be able to simply push through its plans.

Sunday’s vote was the first electoral test for Merkel since she and her new national government took office.