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September 29, 2009

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Merkel pledges quick deal on coalition

CHANCELLOR Angela Merkel vowed yesterday to have a new center-right German government in place by the time Germany marks 20 years since the fall of the Berlin Wall on November 9. She said tax cuts were possible in 2011, but rejected savings measures that might strangle an incipient economic recovery.

Voters on Sunday ended the conservative Merkel's right-left "grand coalition" and gave her a comfortable center-right majority - thanks to a strong performance by her new government ally, the business-oriented Free Democrats.

"Germany is entitled to have a new government quickly," Merkel said yesterday before meeting Free Democrats leader Guido Westerwelle.

Germany plans a state ceremony for the wall on November 9, and Merkel said she would like to "greet (foreign) heads of government on November 9 with a new government."

Sunday's election outcome nudged Europe's biggest economy to the right but, with the cautious, consensus-seeking Merkel still in charge, it appeared unlikely to produce a radical lurch in economic policy.

A key plank of Merkel's campaign was a pledge to offer moderate middle-income tax relief. The Free Democrats want a more radical overhaul of the tax system, cutting both the top and bottom income tax rates considerably.

Merkel said possible tax cuts could be implemented from 2011 or 2012, but gave no details. She argues that cuts would stimulate economic growth and ultimately improve tax revenues.

Merkel's center-left rivals, the Social Democrats - her partners in the outgoing coalition - argued it was a bad idea to cut taxes at a time when the government has run up substantial debts to combat the economic crisis.

Yet the chancellor made clear that she doesn't want to implement painful spending cuts to balance the books.

The export-dependent economy returned to slight growth in the second quarter, but is still expected to shrink by 5 percent or more this year.


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