Germany in recession, says minister

A SENIOR German minister admitted for the first time yesterday that the country is in recession. 'It is no use beating about the bush,' the Economics Minister, Jurgen Mollemann, said, referring to the government's previous description of the economic difficulties as a 'consolidation phase'. The 'worldwide recession has now overtaken Germany as well. In the first half of next year, we shall not just have zero growth but a moderate decline,' he said.

Mr Mollemann emphasised that a solidarity pact between the Bonn administration, the opposition, the state governments and the trade unions is essential for long-term economic stability in the west and recovery in the east. Chancellor Helmut Kohl has been holding a series of secret meetings with trade union leaders and senior members of the opposition Social Democrats in an urgent effort to establish the contents of a pact before Christmas. It is seen by the Bundesbank as one of the most important elements in paving the way for German interest rate cuts.

The negotiations involve a complex series of trade-offs to subsidise the east without increasing the overall burden of public spending. Just as important as forcing through federal government cuts is persuading the state (lander) governments to curb their spending, which is still growing at about 6 per cent. At the same time, trade unions in the west are being asked to keep their wage claims for 1993 down to 4 per cent to stabilise the western German economy.

The government has already made important concessions to the opposition and trade unions, which have been demanding a more interventionist industrial policy in the east, funded by higher contributions from the better-off. In a significant policy switch, the government has agreed to pump billions more deutschmarks into the east to keep large, uneconomic firms alive where they are important to their regions. Chancellor Kohl has also agreed to step up incentives and training programmes for medium-sized firms in the east.

In another attempt to win trade union and opposition support, Mr Kohl has reversed policy by saying that details of the tax rises to come in 1995 to pay for unification will already have been made clear early next year.

With the 1993 wage round about to get under way, the pace- setting public sector union, OTV, which led a bitter strike against the government in the spring, has announced a low wage bid of 5 per cent. The country's biggest union, IG Metall, negotiated an 18- month deal earlier this year which established 3 per cent for the first nine months of 1993. However, taken over the whole year, with working hours and extras included, the increase works out at between 5 and 6 per cent - a fact that the government and the other unions are desperately trying to keep quiet.

Volkswagen will turn in an operating loss of more than DM1bn this year, according to Spiegel magazine. Spiegel also reported, on the basis of internal documents, that Volkswagen's debt has risen to DM25bn this year. The company is said to be planning investment cuts, including delaying expansion of its new plant in Zwickau, eastern Germany.