Pressure mounts on Merkel as German economy dives

8th January 2009, Comments 0 comments

A slew of new statistics point to more, and greater, troubles for the German economy.

Berlin -- New data on Thursday showing a collapse in German exports and fast shrinking manufacturing activity increased pressure on Berlin to finalize a rescue plan for the country's ailing economy.

Chancellor Angela Merkel's "grand coalition" is poised to hold a crunch meeting next Monday to hammer out a political agreement on a new stimulus package worth some 50 billion euros (70 billion dollars) over two years.

This follows a first raft of measures worth over 30 billion euros (40 billion dollars) agreed last November that was widely derided as being too puny.

Berlin has been widely criticized for acting too slowly and too cautiously to counteract the financial crisis, with Merkel dubbed "Madame Non" in some European quarters.

A senior official from Merkel's CDU party revealed Wednesday that the government is also set to put in place guarantees worth 100 billion euros (140 billion dollars) to help businesses unable to get funding from banks.

The need to find a solution to the crisis is becoming increasingly urgent as indications grow that Europe's economic powerhouse is slipping fast into its worst postwar recession.

German exports plunged in November at their fastest rate since 1990, falling 10.6 percent from the previous month, the statistics office Destatis said in a statement on Thursday.

Compared to November last year, the figures were equally bad: exports from Germany -- which prides itself on being the world's biggest exporter -- plunged 11.8 percent to 77.1 billion euros (96.2 billion dollars).

The country's manufacturing sector is also feeling the pain from the global economic crisis. Figures earlier Thursday showed orders for German industrial goods diving 6 percent, a much worse result than economists had feared.

The recession is now also taking its toll on German jobs. Unemployment rose for the first time in 33 months in December, with more than three million people out of work, figures showed on Wednesday.

And the misery is only set to get worse as the year unfolds, analysts say.

The president of the influential IFO economic institute, Hans-Werner Sinn, warned this week that no recovery was likely before 2011 and said unemployment could rise as high as four million, as growth slumps.

Such prevailing gloom means the economy will be one of the main battlegrounds throughout 2009 -- a key political year, during which Germany holds a parliamentary election on September 27 and several crucial state polls.

The first of these state elections is due on January 18 in the western state of Hesse, home to Frankfurt, Germany's major financial centre.

The latest opinion polls in Hesse suggest a coalition of Merkel's CDU party and the free-market Free Democratic Party will win a clear majority. The CDU governs a national level in coalition with the center-left Social Democrats.

Richard Carter/AFP/Expatica

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