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German govt backs $65b stimulus plan
(China Daily)
Updated: 2008-11-06 07:50


Angela Merkel, Germany's chancellor, speaks at a news conference in Berlin. Bloomberg News

German Chancellor Angela Merkel's Cabinet agreed on a "bold" package of measures aimed at shoring up the economy amid a global slowdown.

The two-year, 50 billion-euro ($65 billion) program ranges from tax breaks for buyers of new cars to greater financial help for improving buildings' energy efficiency, according to a joint paper by the Finance Ministry and Economy Ministry obtained by Bloomberg News.

The program is "bold and targeted" and will act as a "bridge" to revive economic growth in 2010, Merkel said in a speech to the BDA employers' federation on Tuesday.

The measures are "completely different from an artificial, state-sponsored program to stimulate demand that costs billions. We emphatically want to avoid this."

The government stimulus program for the economy, Europe's biggest, was agreed by the Cabinet in Berlin yesterday, two days after the European Commission forecast stagnation in Germany in 2009, an election year. The government last month slashed its own forecast for 2009 growth to 0.2 percent from 1.2 percent, citing weakening demand for exports as the financial crisis feeds into the global economy.

The main aim of the program, which also includes increased tax relief on household repairs, loans to small and medium-sized businesses and money for roads and railways, is to deliver "incentives for investment spending," according to Stefan Bielmeier, an economist with Deutsche Bank AG in Frankfurt.

Too small

The growth program "is too small and is designed mainly for capital spending instead of consumer spending," Bielmeier said in a Nov 3 note.

"We believe that the growth impulses will be smaller than expected by the government. But it could help to shorten the period of negative GDP growth in Germany."

Germany follows the US in attempting to prime the wider economy after the financial crisis triggered the collapse of Lehman Brothers Holdings Inc in September, forcing government bank bailout programs. Germany rushed a 500 billion-euro bank- rescue plan through parliament on Oct 17.

President George W. Bush signed a $168 billion economic stimulus package into law in February that sent tax rebates of as much as $600 to individuals and $1,200 to couples.

US lawmakers are moving toward a second fiscal-stimulus bill after Federal Reserve Chairman Ben S. Bernanke endorsed the idea. Democratic President-elect Barack Obama has called for a measure worth $175 billion.

The German steps, equivalent to about 2 percent of gross domestic product, are worth "double the effect of the Bush program from this spring", Jens Ehrhardt, who oversees $12 billion at Munich-based Dr. Jens Ehrhardt Kapital AG, told Tuesday's edition of Handelsblatt newspaper.

In her speech, Merkel said that the program won't be able to avert economic hardship in 2009.

Merkel's Christian Democrats and her Social Democrat coalition partners will contest national elections in September next year.

Bad news

"We'll have bad news in 2009 but we'll be taking steps to make it better again in 2010," Merkel said. "There's no script for managing the crisis."

The measures will "obviously" hurt attempts to balance the federal budget by 2011, Merkel said.

That will remain a "goal" for the government in the next legislative period after the election, she said.

In a related development, a panel of fiscal experts meeting in Hildesheim, about 140 km south of Hamburg, is scheduled to give new estimates yesterday for tax revenue at federal, state and municipal level for this year and next.

"History shows that economic stimulus packages aren't a panacea," said Joerg Kraemer, chief economist at Commerzbank AG in Frankfurt.

"Taking into account what we know now, the measures will alleviate the looming recession but won't stop it."


(China Daily 11/06/2008 page17)