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In a frantic effort to qualify for monetary union, the German government was putting the final touches yesterday to a severe austerity package, Imre Karacs writes

Resistance by Helmut Kohl's junior coalition partners, the Free Democrats (FDP), appears to have thwarted attempts to raise taxes. Instead, the government is preparing to axe welfare projects and launch a hectic wave of privatisations.

This year's budget shortfall is to be made up in part from privatisation revenues and from pruning state spending. Next year, when the deficit is set to be even higher, the government is considering the abolition of a range of tax concessions to companies.

The contours of the new programme emerged after weeks of haggling between Mr Kohl's Christian Democrats and the Free Democrats. "We are not at the end of the talks but we moving in the right direction," said Guido Westerwelle, FDP general secretary.