Berlin -- German Chancellor Angela Merkel's government is to hammer out a major new stimulus package this week for Europe's biggest economy but her fractious coalition is still divided on the details.

The 50-billion-euro (67-billion-dollar) raft of measures over two years is aimed at pulling the German economy out of a perilous downturn and comes amid charges Berlin is doing too little to rescue Europe's economic powerhouse.

It follows a previous bundle worth 30 billion euros approved in November that was attacked here and abroad as too meagre.

Merkel's conservative CDU/CSU bloc will huddle with its junior coalition partners, the Social Democrats, late Monday to hash out the plan, which is to include 10 billion euros in public investment as well as tax cuts.

"We must confront this global economic recession with a great national and international show of strength and limit its consequences for our country and our job-holders," Merkel told Sunday's Bild am Sonntag newspaper.

"With tax relief and lower social welfare contributions, we want to give people more financial room to manoeuvre."

She said the package would include new investment in schools and infrastructure, simpler rules creating temporary jobs and the launch of a 100-billion-euro fund to guarantee loans for firms hobbled by the credit crisis.

Merkel added there would be fresh help for the ailing automobile industry, possibly in the form of pegging car tax reductions to lower greenhouse gas emissions.

But a series of key polls this year, culminating in a September general election, are colouring the debate and no side wants to appear the party-pooper as Berlin prepares a vast cash giveaway.

Both Merkel's Christian Democrats (CDU) and the Social Democrats have dropped their initial opposition to tax breaks -- a position they had fervently maintained was key to maintaining a balanced budget.

The conservatives are now calling for up to 7.5 billion euros in tax cuts. The Social Democrats have proposed offsetting the move with temporarily higher taxes on top earners as a "solidarity contribution" in tough times but Merkel has rejected the bid.

"I am convinced that this measure is necessary and justified," Foreign Minister Frank-Walter Steinmeier, the SPD's candidate for chancellor, insisted in an interview with the Passauer Neue Presse.

"The debts that we are now accumulating will have to be paid back one day by everyone, especially the young. That is why I think it makes sense to ask the strongest to carry a bit more of the burden.

The conservatives are also wracked by infighting with the CDU's Bavarian sister party, the Christian Social Union, demanding far bigger tax relief.

The spats come amid an avalanche of dire economic news.

Unemployment rose last month for the first time in three years with more than three million jobless, and Labour Office chief Frank-Juergen Weise said in a weekend interview that the figure could eventually top four million.

The government has also been forced to repeatedly correct its 2009 growth forecast and the economy ministry is now working on the assumption that gross domestic product will shrink three percent this year.

And Der Spiegel news weekly reports in its issue to be published Monday that Finance Minister Peer Steinbrueck will have to present a supplementary budget of 20 billion euros this month. A spokesman however dismissed the amount as "pure speculation".

Meanwhile the head of a watchdog committee for a banking sector stabilisation fund, Albert Rupprecht, told the Handelsblatt business daily that he backed the creation of a "bad bank" to buy toxic assets to help unblock the credit crunch.

Deborah Cole/AFP/Expatica