Oct. 28 (Bloomberg) -- Angela Merkel was sworn in for a second term as German chancellor, opening a legislative period that she’s said will be dominated by efforts to spur growth as Europe’s biggest economy emerges from recession.

Merkel was handed her letter of appointment by President Horst Koehler in Bellevue Palace in Berlin during a ceremony lasting less than 5 minutes, before taking her oath in the lower house of parliament, the Bundestag. Lawmakers earlier re-elected her by 323-285 votes, with four abstentions. Merkel is due to preside over the first meeting of her new Cabinet at 4:30 p.m.

The coalition of Merkel’s Christian Democrats and the Free Democrats led by Guido Westerwelle, the foreign minister and vice chancellor, takes office in the shadow of the worst economic slump in modern Germany’s 60-year history. They have pledged to cut taxes, even as debt soars to a record next year.

Tackling the “shambles” in the federal budget is the biggest task Merkel and Finance Minister Wolfgang Schaeuble face, Jan Techau, an analyst at the German Council on Foreign Relations in Berlin, said in a Bloomberg television interview. Consolidating the budget while at the same time lowering taxes “will be very, very difficult, if not an impossible task.”

Merkel’s administration will borrow a record 329 billion euros ($487 billion) in 2010 as it boosts spending to speed economic recovery, according to a forecast by the outgoing Social Democratic finance minister, Peer Steinbrueck. The Social Democrats went into official opposition yesterday after 11 years in government, following their defeat in Sept. 27 elections.

‘New Order’

Koehler, addressing Merkel and her ministers, said the Cabinet should focus on reducing public debt as stated in the constitution and in European Union law. Financial markets must be given a “new order” to prevent the next crisis from being worse than the current one, Koehler said, according to the e- mailed text of his speech. He added that he supports the government’s push for a global financial transaction tax.

Merkel, in a speech two days ago to her party, stood by tax cuts worth 24 billion euros as outlined in the coalition agreement signed with the Free Democrats, more than the 15 billion euros she had pledged before the elections.

With the coalition contract, “we’ve decided to go down a road that relies fully on growth,” Merkel said. “I don’t see any chance of succeeding if all we do is save, save, save.”

Luxembourg’s Prime Minister Jean-Claude Juncker criticized the German government in today’s Handelsblatt newspaper for failing to focus on reducing an “exorbitant amount of debt that the next generation will hardly be able to bear.”

‘Can’t Go On’

Merkel’s new government “has to recognize that this can’t go on, whatever’s in the coalition agreement,” Handelsblatt cited Juncker as saying in an interview published today. “How should the heads of government in Luxembourg, Belgium or Austria tell their citizens to stick to a strict saving regime when Germany and France aren’t holding to one?”

With Germany struggling to recover from recession, it is “naturally” impossible to eliminate the deficit in the next four years, Schaeuble told the Welt am Sonntag newspaper on Oct. 25, his first interview since being tapped to move to finance from the interior ministry. “It certainly doesn’t make sense to talk about savings measures at a time when the economy needs an impulse.”

To contact the reporter on this story: Alan Crawford at acrawford6@bloomberg.net

Last Updated: October 28, 2009 09:15 EDT