German business facing 'a crisis of confidence'

GERMAN business is suffering a 'deep crisis of confidence', the Federation of German Industry (BDI) said yesterday.

In its new year economic report, it condemned the Bonn government for failing to adapt to the 'fundamentally new situation in Germany'. It said this was further paralysing entrepreneurial initiative in the country.

At the same time Francois Mitterrand, the French President, voiced his country's deep frustration with the Bundesbank, saying its monetary policy was 'too restrictive for the European and world economies'.

His remarks came in a foretaste of a interview with German television to be broadcast today. Although the French economy was fundamentally 'very healthy, it is suffering from the high cost of credit', Mr Mitterrand said.

The economics ministry said on Tuesday it expected a real decline in western German gross domestic product of nearly 1 per cent this year.

According to the BDI report, industry's confidence in a short- term solution to the current misery has been 'considerably undermined' by the recession and the fact that people only became aware of the full costs of unification last year.

Setting out Germany's dilemma, the report said: 'The economy will only return to lasting growth when the upswing in the east succeeds. But an essential condition for this is a quick recovery in the west.'

The BDI did not comment on the plans announced on Tuesday by the Bonn government for curbing public spending in the west by DM18bn ( pounds 7.4bn) to ease the burden of the ballooning costs of rebuilding the east. It merely stressed that 'convincing new spending priorities would give the Bundesbank room to make the urgently needed relaxation of interest rate policy'.

Other economists said the plans were unlikely to prompt swift reductions in official interest rates.