Bonn is holding back recovery, say advisers

THE BONN government's persistent failure to control public spending is a crucial factor in holding back recovery, Germany's independent Council of Economic Advisers said yesterday.

The so-called Five Wise Men said that exploding public debt since unification had caused a 'virtual crisis of confidence among investors'. The council's pessimistic annual report forecasts a stagnating western German economy and sharply rising unemployment in 1994.

Herbert Hax, the council's chairman, said: 'What people keep mentioning time and again is the fear that Germany will not get the crisis in its state finances back under control.'

He blamed the unusually strong drop in business investment for the steep plunge into recession and said the investor climate was still 'particularly frosty'.

Investment remained the key to a German recovery, the Five Wise Men said, particularly as the prospect of export-led growth would, at best, be very modest in 1994.

While ruling out a double-dip recession, the council forecast 'minus zero' growth for western German gross domestic product next year.

This is a much bleaker assessment than that of Germany's leading economic institutes, which last month predicted a rise in western German GDP of 1 per cent in 1994, after a fall of 2 per cent this year.

Gunter Rexrodt, the economics minister, said the government remained more optimistic, hoping for real growth of between 0.5 and 1 per cent in the west in 1994.

The council's report said that western German unemployment would rise next year to 2.75 million, or 9 per cent of the workforce, and that all-German joblessness would be just over 4 million, or 11.5 per cent.

If hidden unemployment were also taken into account, the report added, total German unemployment this year would already be nearer 6 million than the official figure of 3.4 million.

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