US embassy cable - 03FRANKFURT7786

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