As elections loom, Germany's politicians bid for rescue plan

13th January 2009, Comments 0 comments

Merkel convened her conservative CDU party and SPD coalition partners to thrash out an accord on a 50-billion-euro rescue plan for Europe's economic powerhouse.

Berlin -- As Germany's economy slides ever deeper into recession, Chancellor Angela Merkel's fractious government aimed Monday to put party politics aside in a bid to haul the country out of the slump.

Merkel convened her conservative CDU party and SPD coalition partners to thrash out an accord on a 50-billion-euro (67-billion-dollar) rescue plan for Europe's economic powerhouse.

The package will include new investment in schools and infrastructure, simpler rules on creating temporary jobs and up to 100 billion euros in loan guarantees for struggling firms, she has said.

While there is broad agreement on the size of the package, the parties remain divided on some of the fine print, with neither side wanting to seem ungenerous ahead of general elections in September and several state polls.

As talks get underway, the main source of discord remains tax policy. The SPD wants to reduce the basic tax rate to 12 percent from 15 percent but the conservatives have sharply rejected this.

Economy Minister Michael Glos, from the CDU's southern sister party the CSU, slammed the proposal as "not sensible," with another senior CDU official saying it stood "no chance" of being adopted.

On the other hand, the SPD is keen to raise the tax for top earners, a notion rebuffed by Merkel.

Another key sticking point is whether the German government should use its 100-billion-euro fund to take stakes in stricken firms or to guarantee loans to healthy businesses.

On Monday, Merkel raised the possibility that German car giant Opel could be an early recipient of a guarantee from this proposed "Germany fund."

While she has not ruled out the government taking stakes in businesses unable to raise bank credit, the SPD is strongly opposed.

As the coalition squabbles, the economic situation in Europe's largest economy has become ever more dire.

Unemployment rose for the first time in 33 months in December with more than three million out of work while Berlin fears the economy could shrink by 3 percent this year -- the sharpest dip for 60 years.

The gloomy atmosphere is turning up the heat on politicians to reach an accord, with voices from business and the media calling for decisive action.

"We should not keep moaning about the situation but discuss the problems openly with the banks," president of the BDI business association, Hans-Peter Keitel, said in an interview with news weekly Der Spiegel published Monday.

An editorial in the influential daily Sueddeutsche Zeiting complained the two coalition parties were "getting lost in party politics."

"What will emerge from this is an economic package that offers something to everyone because each party wants to serve its own clientele," the newspaper said.

Nevertheless, some analysts warned that even 50 billion euros would be insufficient to drag Europe's largest economy out of recession.

Andreas Rees from Unicredit group said in a research note: "How effective will this state package be? In my opinion it will not be enough to prevent a recession in Germany ... in the first half of 2009.

"The reason? It's too late," Rees added.

The impact of the package will be felt only in 2010, Rees said, as the global economy begins to pick up.

This chimes with comments earlier Monday from Group of 10 central bankers who said the world economy would slow sharply this year before posting a "significant pick up" in 2010.

Richard Carter/AFP/Expatica

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