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. Last Updated: 07/27/2016

Schreder's Cabinet Approves Controversial Austerity Plan

BERLIN -- Chancellor Gerhard Schreder's Cabinet on Wednesday approved hotly debated plans for budget cuts designed to spur the German economy, fight joblessness and bolster the euro.

Schreder's effort to trim the nation's generous social safety net has sparked fierce resistance among his own Social Democrats, making it crucial to his authority as German leader and the success of his center-left coalition.

Passage of the austerity package, meant to trim 30 billion Deutsche marks ($16 billion) from next year's budget, was Schreder's first initiative since he began governing from the reinstated capital of Berlin on Monday.

Billed by the government as postwar Germany's sharpest budget cut when it was unveiled in June, the bill is now headed for parliament.

Its most controversial proposals include a clause raising pension payments only at the rate of annual inflation in 2000 and 2001.

Some politicians, including leading Social Democrats who charge the plan is unfairly harsh, have threatened to block the entire austerity package if the clause remains.

Finance Minister Hans Eichel, announcing Cabinet approval of the package, said it contained some "bitter medicine'' but denied that it was "socially unbalanced.''

He said the overriding task was to cut Germany's debt, which soared under Schreder's predecessor Helmut Kohl because of the cost of rebuilding former communist East Germany.

Everything from unemployment benefits to defense spending is to be cut under the austerity plan, which calls for a balanced federal budget by 2006.

Schreder has vowed not to budge on the cuts, even though he blames them in part for a recent slump in popularity.

Also approved Wednesday were a gradual increase in taxes on fossil fuels and electricity as well as an increase in monthly government supports for families with children.