Kohl pushes ahead with levy for east

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Chancellor Helmut Kohl yesterday threw his support behind plans to impose a compulsory loan on western Germans to promote investment in the struggling east.

During a meeting in Bonn with Christian Democrat MPs from the east, Mr Kohl called for the introduction of a so-called 'Solidarity Pact', whereby trade unions would moderate wage claims in return for what amounts to a hidden tax on companies and higher- earners in the west. Mr Kohl gave assurances that Theo Waigel, his Finance Minister, supported the proposals.

Although the entire parliamentary group of the Christian Democratic Union (CDU) and its sister Christian Social Union had supported the proposals when they were unveiled at a closed-door session in Leipzig last week, a number of MPs, unnerved by the controversy caused by what look to many like indirect tax increases, had begun publicly to criticise them. Describing the row in the governing coalition as the 'antics of a kindergarten', a senior CDU MP said that 'time for evading difficult measures has run out'.

Venting his anger at the difficulty of getting MPs to hold the line, Wolfgang Schauble, an influential Christian Democrat, yesterday broke the government taboo on tax increases, warning the states in western Germany that they must drastically reduce expenditure 'if we want to spare citizens higher taxes'.

The impression that the Kohl government is being forced into a policy U-turn by the spiralling costs of unification was reinforced elsewhere. A government spokesman, Norbert Schafer, said that the administration 'did not exclude tax increases'. A Finance Ministry spokesman said that, while funding for the east into next year was secured, the period afterwards contained 'certain risks'. Mr Schauble emphasised that the idea of obliging firms and better-off individuals who have not invested in the east to make an interest-free loan to the state was essential to the government's hopes of achieving lower labour costs in Germany. He said the proposals had been left vague to facilitate discussions with the opposition Social Democrats, whose reaction has been mixed. The Social Democrats favour a straight tax increase on higher-earners to help pay for unification.

While conceding that the idea of a compulsory loan is 'very complicated, not least because of constitutional objections', a senior Chancellery official said 'the matter is being taken seriously because everyone is aware something needs to be done'.

The relentlessly gloomy economic news - it was announced yesterday that bankruptcies in western Germany had risen for the first time since 1986 - is also prompting urgent demands among Christian Democrat MPs for Mr Kohl to 'talk to the nation'. The CDU's chief whip, Clemens Schwalbe, said yesterday that the time had come 'to tell people that the road is hard, and that we have made mistakes'.

The idea of imposing special taxes in times of national need is not new in Germany. In 1951 a tax was introduced on firms to raise money for rebuilding the coal and steel industries. Chancellor Kohl tried in 1982 to impose a compulsory loan to help pay off huge state debts, but ran into objections from the constitutional court.

Germany's opposition Social Democrats yesterday accused the government of deliberately allowing pressure from the influx of asylum-seekers into the country to increase for political ends. The party said that 360,000 requests for asylum remained unprocessed.