GERMANY FILE

by Stuart Penson

As parliament debates a DM30bn (£9.9bn) austerity package designed to restore balance to the public accounts, belt tightening in welfare benefits and transport dominates public discussion.

But for manufacturers, there are also concerns about planned research and development cuts. Hans Eichel, the finance minister, has proposed a reduction of DM538m in the research budget and a DM228m cut in aid for `financial and technical development’.

For the big industrials, cuts in these areas are not a worry. After all, for decades they have ploughed significant tranches of their earnings back into R&D – even in recession. But it can be crucial for small and medium-sized companies.

Many of these firms lack capital to get ideas off the ground. Venture capital is far less readily available in Germany than, say, in the UK and raising money from the financial markets is only a realistic option for a handful of companies, even via the Neuer Markt, Germany’s special market for technology firms.

The Association of German Industry estimates that Eichel’s plan would see a 2.28% reduction in the budget available next year to Edelgard Bulmahn, the research and training minister. Prior to gaining power, the Government promised a doubling of research spending. And on taking office Bulmahn drew admiration from manufacturers across the country when she demanded at least an extra DM1bn a year for research, training and the promotion of new technology. Now, reality is taking hold.

But Eichel’s plans may not materialise. His government does not have a sufficient majority in the upper house to carry through the package and last week the opposition lambasted his proposals, warning that they could stifle economic recovery.

* Cautious confidence is evident in the car industry, according to the noises coming out of last week’s Frankfurt Motor Show. Production and sales this year are expected to at least match the record levels of 1998, the Automobile Industry Association predicted, with preliminary estimates pointing to a significant export surplus.

Adding to the feelgood factor was a survey commissioned by Wirtschafts Woche, the leading business weekly, which showed the car industry to be Germany’s biggest creator of new jobs in the past 12 months – Daimler-Chrysler taking on 8,000 new staff and Volkswagen 5,030 during the period.