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Germany said to face $42b budget shortfall
(AP)
Updated: 2005-10-25 09:56

The two sides started formal coalition talks a week ago, and working groups tasked with hammering out the details presented their first reports Monday.

Merkel and Social Democrat Chairman Franz Muentefering said concrete budget measure had yet to be discussed, leaving open whether Merkel's campaign pledge to finance a cut in non-wage labor costs by increasing value-added tax was still alive.

They insisted there would still be room for measures to foster growth.

Conservative leader and Chancellor-designate Angela Merkel pauses as she addresses a news conference following the second round of coalition talks with the Social Democrats at her headquarters in Berlin October 24, 2005.[Reuters]

"Money is short and it's clear that milk and honey will not flow, but there will still be healthy bread and decent jam," Muentefering said after the talks in the headquarters of Merkel's Christian Democrats.

He also said they were broadly agreed on foreign policy, including "good" relations with the United States, which suffered under Schroeder's opposition to the war in Iraq.

But commentators expect the Social Democrats to block Merkel's drive to accelerate reforms begun under Schroeder, who accused her during the campaign of wanting to wreck cherished welfare safety nets.