Bonn government agrees to a common budget

In the Perils-of-Pauline melodrama that has had pundits speculating for weeks about a breakup of Bonn's Social Democratic-Liberal coalition, the final answer (for now) is no.

The senior Social Democrats (SPD) and the junior Free Democrats (FDP) have knocked enough backbenchers' heads together after all to produce a common 1982 budget with an austere 4.2 percent increase.

The 241 billion mark ($98.4 billion) budget finally approved by the Cabinet Sept. 3 will thus represent a likely real drop of over 1 percent from 1981. It will cut social welfare slightly and bring this year's approximately 35 billion mark ($14.3 billion) deficit (4.5 percent of gross national product), the highest deficit in any major industrialized country except Italy) down to a less punishing 26.5 billion marks ($10.8 billion).

This will be accomplished by, among other measures, reducing unemployment payments slightly, reducing payments for second and third children in families by 20 marks a month, and increasing liquor and tobacco taxes.

In the item of main interest to the US, the rise in defense spending is to be kept in line with the overall budget rise. This will mean not only a failure to meet the 3 percent real annual increase pledged by NATO members, but even a drop in West Germany's military budget in real terms.

In presenting his government's budget to the public, Chancellor Helmut Schmidt expressed the hope that the cut in Indebtedness might help lower interest rates and stimulate the sluggish economy. Economists regard this as a vain hope, however, given the soaring US interest rates.

A warning light for the future is present in the "reservations" about the compromise budget put forward by both coalition partners. If unemployment rises sharply -- August figures already show a rate of 5.5 percent, the highest in 29 years, and the latest Deutsche Bank forecast expects the situation to worsen by year's end -- the Social Democrats intend to resurrect their orignal proposal for state investment to create jobs. If the deficit squeeze worsens, on the other hand, the Liberals intend to resurrect their contrary proposal for more extensive cuts in unemployment benefits.

Nobody is wildly happy about the new budget. The Social Democrats wanted to give their trade supporters that job creation program. The Liberals wanted to reduce sickness pay substantially; instead the issue was postponed for next year.

Both sides can live with the compromise, however. And in a year in which the gross national product is expected to fall, this is no mean feat. The Social Democrats managed to avoid major cuts in social welfare. The Liberals -- who despite their small size hold the whip hand with their implicit threat to abandon the SPD and give the parliamentary majority to the opposition conservatives -- got their ban on higher income taxes and also got tax incentives for investment.

Conclusion of a budget truce does not end speculation about an SPD-FDP divorce.In the past two decades the swing-vote FDP has always determined by its choice of partner who would hold the chancellery -- the conservatives until 1969 , the Social Democrats since then. And both the Liberals and the conservatives have dropped broad hints in recent months about the option of renewing their old coalition. In the standard wisdom, the moment of decision will be the runner-up to the 1984 election.

The Free Democrats gave the strongest signal of their availability when they released a poll last month showing that regular FDP voters would not desert the party if it switched coalitions. Before the poll it had been widely assumed that the Liberals' unusually large 10.6 percent of the vote in last fall's election represented a specific mandate for the SPD-FDP coalition. This theory has now been debunked.

For their part, the conservatives have been ostentatiously courting the Liberals. The wooing started the day after the rightwign conservative chancellor candidate Franz-Josef Strauss of the Bavarian Christian Social Union was discredited by his poor showing in last October's election. The CSU's larger conservative partner in north and southwest Germany, the Christian Democratic Union (CDU), immediately began moving back from the right toward the moderate center.

The trend was reinforced last spring, when the CDU seized the West Berlin mayoralty from the Social Democrats for the first time in three decades with one of the party's most respected moderates, Richard von Weizsacker. The trend is being further strengthened by the recent nomination of a prominent CDU moderate, Walter Leisler Kiep, as mayoral candidate in next spring's election in the traditionally Social Democratic city of Hamburg.

In the face of the government budget compromise FDP head (and foreign minister) Hans-Dietrich Genscher has denied any intent of forsaking the Social Democrats. But his disavowals convince few.