MercoPress. South Atlantic News Agency

Germany and UK deciding drastic budget cuts; fears in the rest of Europe

Chancellor Angela Merkel

German Chancellor Angela Merkel is holding a special, two-day cabinet meeting to come up with a savings plan for the country's budget. Berlin wants to rein in its deficit to meet European Union rules, as a sovereign-debt crisis has hit markets and the Euro in the past few months.

Germany faces a deficit of more than 86 billion Euros this year and has to cut 10 billion a year until 2016. Measures being considered include road tolls, tax rises and welfare cuts.

Additional health-care payments and reduced public service worker numbers have also been mooted as potential savings possibilities.

German media reports have also said there may be cuts to reduce military spending, shrinking the army and scrapping conscription.

Chancellor Merkel has insisted Germany cannot live beyond its means, saying “we can only spend what we take in”.

And Finance Minister Wolfgang Schaeuble has said the measures may be “stricter than necessary” to allow greater room for economic manoeuvre later.

Meantime in Britain Prime Minister David Cameron has warned of “difficult decisions” on pay, pensions and benefits as he set out the case for “painful” cuts ahead.

Dealing with the deficit would affect “our whole way of life” but not in a way that hits the vulnerable or “divides the country”, he said. The Treasury will say on Tuesday how it will consult the public on its plans.

Shadow chancellor Alistair Darling said Mr Cameron was talking “nonsense” and did not understand the need for growth.

The Conservative-Lib Dem coalition government has already outlined plans for £6.2 billion cuts this financial year - and is preparing for a Budget on 22 June.

Mr Cameron started his speech by saying problems were “even worse than we thought” and blamed the last Labour government for the “debt crisis”.

He accused them of a “public sector splurge” at a time when the private sector was shrinking.

However some experts worry Germany and the UK may cut back too deeply when much of Europe is looking to the two countries to lead the way out of financial crisis.