Merkel says Germany will emerge stronger from recession

14th January 2009, Comments 0 comments

After leaders of her left-right government thrashed out a deal overnight on tax breaks and public spending worth 50 billion euros over two years, Merkel said the measures were the right steps at the right time.

Berlin -- Chancellor Angela Merkel defended the biggest stimulus package in German postwar history Tuesday against critics, saying it would leave Europe's top economy in better shape than before the crisis.

After leaders of her left-right government thrashed out a deal overnight on tax breaks and public spending worth 50 billion euros (66 billion euros) over two years, Merkel said the measures were the right steps at the right time.

"With our 'Pact for Germany' we are providing the impetus ... for growth, for employment in Germany because employment for people is our overriding concern," Merkel told reporters.

Merkel had just last month warned her European neighbors against a reckless "race to spend billions" to fight the global recession, preferring a wait-and-see approach.

Since then, the pressure had mounted on the woman dubbed "Madame Non" in some European quarters to take more decisive action, as the world's biggest exporter faced a deluge of grim economic news.

Brushing away questions on her apparent about-face, Merkel said Berlin had conducted a "sober analysis" of the crisis and said mounting problems required more urgent action.

"This time has now come," Merkel said.

Vice chancellor Frank-Walter Steinmeier of the Social Democrats (SPD), who will challenge Merkel in September general elections, said no European country was doing more than Germany to boost its economy.

"When I look around in Europe, I don't really see who is doing more and acting more appropriately than we are," Steinmeier, who is also foreign minister, told a joint news conference.

The new package is a second, stronger shot in the arm for the world's leading one exporter after a first, 12-billion-euro effort announced in November came up short.

Finalized in late-night talks between Merkel's CDU conservatives and the centre-left SPD, it includes 17-18 billion euros in investments in roads and schools, and nine billion euros in tax cuts for firms and individuals.

It also includes a 100-billion-euro loan guarantee program to help stricken companies hobbled by the credit crunch, according to a copy of the agreement obtained by AFP.

Other elements include a one-off, 100-euro extra child benefit payment and sweeteners to persuade reluctant consumers to buy new, environmentally friendly cars to boost Germany's struggling auto sector.

It also includes cuts in health insurance contributions for employers and employees to slash the cost of job creation and to put more cash in shoppers' pockets, and simpler rules on creating temporary work.

But critics slammed the measures -- many of which will only take effect on July 1 -- as too limited to reverse what economists warn will be the worst recession in the postwar period.

"It is ridiculous to believe that such puny amounts could stabilize the economy," the leader of the opposition pro-business Free Democrats, Guido Westerwelle, told the Muenchener Merkur newspaper, calling for deeper tax cuts.

Analyst Holger Schmieding of Bank of America called the stimulus package "a very mixed bag".

"To stop and reverse the current downward spiral in investment and business early, an immediate stimulus to demand would have made most sense, for instance, a big immediate cut in payroll taxes," he said.

Data in recent months have made it clear that the German economy is going south, with industrial orders and output falling off a cliff and unemployment on the rise in December for the first time in 33 months.

Unemployment now stands at more than three million and economists fear one in 10 workers will be out of a job by the time of the general election in September. GDP could shrink three percent this year.

The cabinet is due to approve the stimulus package over the coming week before the lower and upper houses of parliament vote in late January or early February.

Deborah Cole/AFP/Expatica

0 Comments To This Article