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Cablegate: Protests Follow Hesse/Koch Austerity Plan of Less

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 FRANKFURT 007786

SIPDIS

E.O. 12958: N/A
TAGS: PGOV ECON PINR PREL GM
SUBJECT: Protests Follow Hesse/Koch Austerity Plan of Less
Money, Longer Working Hours


1. SUMMARY: Hesse Minister-President (M-P) Roland Koch's
announcement of austerity measures, including a one-billion
Euro cut in the Hesse state budget, longer working hours
for public employees, cuts in wages and subsidies, and the
sale of state assets resulted in demonstrations by public
sector unions as well as allegations that Koch bought this
year's election on credit. On the heels of a period of
free spending in the run-up to Hesse elections in February
that resulted in record debt, Koch (CDU, Christian
Democratic Union) is keen to demonstrate fiscal discipline
while attacking the Schroeder government on economic
policy. A tenacious politician with national political
ambitions, Koch must see the austerity measures through to
prove himself a credible candidate for chancellor and in
view of Hesse's serious budget gap. END SUMMARY.

Budget Cuts Hit Public Employees and Social Spending
--------------------------------------------- -------

2. On September 2, Hesse M-P Koch announced "Operation
Safe Future," including Hesse's largest ever budget cut of
one billion Euros. After three years of increased spending
and the prospect of a third unconstitutional budget, Koch's
announcement will affect both public servants and
citizens. In its defense, Koch said painful steps were
necessary to save Hesse's future:

-- Public servants (Beamte) will have to work up to 42
hours (currently 38.5) per week. Hesse will cancel and
renegotiate wage agreements for other employees
(Angestellte). Bonuses will be cut, and no new personnel
will be hired.

-- Hesse will cut subsidies by one-third (mainly by
reducing payments to social institutions).

-- Hesse will sell state property, mainly housing and its
stake in the Frankfurt Trade Fair (the City of Frankfurt
must agree).

3. In a letter to public employees, Koch said that Hesse
faces a "disastrous" fiscal situation where only extreme
measures can avert layoffs. As in the private sector,
public employees must start working longer hours. Koch
says 2004 growth is likely to be only one percent, not two
percent as claimed by the SPD-Green government.

Hesse Opposition: Koch Made His Own Bed ...
--------------------------------------------

4. Hesse Greens chairman Matthias Berninger blamed Koch
for the "biggest election fraud in Hesse's history" for
announcing drastic cuts after having overspent prior to
this year's election. Tarek al Wazir (Hesse Greens caucus
leader) said that cutting 127 million Euros in social
spending will mean job losses and fewer programs for AIDS
prevention, consumer protection, and childcare. SPD reps
called for the resignation of Hesse Finance Minister
Karlheinz Weimar. Even representatives of Koch's former
coalition partner FDP said that Hesse has no long-term
strategy for reducing public debt and called on Koch to
stop opposing the Schroeder government's tax reform
package.

5. The pubic employees' association (Beamtenbund) condemned
the Koch announcement and staged the first protests within
24 hours of Koch's announcement. The Verdi trade union
(which represents public workers) continues to reject any
renegotiation of wage agreements. This labor-management
standoff likely will continue and could become embroiled in
party politics.

Koch Must Dig Out of Hole Before National Elections
--------------------------------------------- ------

6. COMMENT: The austerity plan is a drastic change of
course for potential chancellor candidate Koch and for
Hesse (which recorded the biggest budget and debt increase
of all west German states last year), but it comes as no
surprise. Koch knows he must fix Hesse's public sector and
change his image, as even Bavarian CDU premier Edmund
Stoiber (and former contender for chancellor) publicly
admonished Koch to "put his own house in order" before
preaching on national politics. With a new CDU majority in
the Hesse legislature, Koch now has the legislative muscle
to trim the spending excesses of his former coalition
government (CDU-FDP) and to see this austerity plan
through.

7. The austerity measures angered Hesse's civil servants,
and cuts in social spending will give Hesse's voters a
visible reminder of hard times. Koch told CG earlier this
year that he will see the budget cuts through at all costs.
Koch knows that he must mop up Hesse's red ink in time for
an economic recovery if he is to become a credible
candidate for chancellor in 2006. END COMMENT.

BODDE

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