Germans Reach Accord on Funding Unification
BONN — MONTHS of political deadlock ended over the weekend when German politicians agreed on long-term financing of unification costs.
The settlement of the "solidarity pact" was considered an absolute necessity for Chancellor Helmut Kohl, whose government is being increasingly viewed as ineffective by voters.
Finance Minister Theo Waigel hinted that the deal would satisfy the Bundesbank, Germany's central bank, and inspire it to make further cuts in interest rates.
"This result will have positive effects on the economy," Mr. Waigel said, according to a Reuters report. "I am also certain that this result will be judged positively by the Bundesbank in its further decisions."
After a three-day marathon of negotiations, the federal government and the 16 German states came to an agreement Saturday night in which both sides can claim victory.
The federal government succeeded in stalling a tax increase until 1995, arguing that increasing taxes sooner - as the states wanted - would kill off any hopes of recovery for Germany's recessionary economy. All sides agreed that a 7.5 percent income tax would be reinstated in 1995.
The western states succeeded in getting the federal government to shoulder the bulk of the financial burden and the east German states will get extra money to preserve their core industries, build more housing, and create more jobs. Under the pact, east Germany will receive 55.8 billion deutsche marks ($33.5 billion) in aid in 1995.
In a move welcomed by the opposition Social Democrats, the federal government backed away from cuts in social spending, including unemployment benefits. The government said it would i seek savings nstead by cracking down on abuse of social benefits.