Chancellor Angela Merkel's Christian Democrats and their coalition partners, the Free Democrats, began meeting in a plenary session of parliament on Wednesday to defend the first budget of their new administration.

The draft proposals will be debated in 17 separate sessions for each portfolio lasting until the end of the week.

In four hours of debate on Wednesday, Chancellor Merkel will speak, along with all the parliamentary group leaders, the foreign minister, defense minister and finance minister. The opposition generally uses this opportunity for a high-profile critique of the government in power.

The Free Democrats are pushing for more tax cuts and an overall simplification of Germany's complex tax code. But the Christian Democrats are not sure what they can deliver amid low revenues and exploding expenditures.

The draft budget, outlined by Finance Minister Wolfgang Schaeuble, predicts the highest budget deficit in Germany's postwar history totalling nearly 86 billion euros ($123 billion).

In addition, another 14.5 billion euros in fresh loans will be borrowed for a so-called shadow budget that is separate from the official federal budget. Schaeuble called the borrowing "bitter but necessary."

The new level of debt reflected the global economic crisis, Schaeuble said.

"We must proceed without being able to see very far ahead. We are in the midst of a grave and unprecedented financial situation," he added.

Total expenditures this year are expected to reach approximately 325 billion euros, 33 billion euros more than last year. The largest, single expenditure at nearly 147 billion euros is earmarked for social services.

With tax revenues sinking due to the sluggish economy, that would require the government to take out up to 100 billion euros in loans. On a happier note, however, the Institute for the Wrold Economy in Kiel (IfW) has forecast that net new debt will not exceed 80 billion euros.

However, Schaeuble warned that public expenditure would be cut in 2011, and said "grave decisions lie ahead."

Although the economy is expected to see growth of 1.5 percent, the government estimates that 3.7 million people will be unemployed this year.

The 2010 budget should be ready in March.

gb/dpa/AFP/AP/Reuters

Editor: Rob Turner