Germany agrees on 50-billion-euro stimulus plan

Germany's two main parliamentary groups have agreed to agree on a new 50-billion-euro economic stimulus plan in the financial crisis which has rocked European economies for the last couple of months.


AFP - Germany's ruling coalition has reached agreement on a 50-billion-euro (70-billion-dollar) economic stimulus plan over the next two years, representatives said after talks on Monday.

The plan, agreed by the two main parliamentary groups, the conservative CDU/CSU, and the social democrat SPD, is to be presented at a cabinet meeting next week. Details of the proposed stimulus plan were not revealed.

Certain measures are still under discussion, such as the lowering of taxes, said the parties' parliamentary leaders after more than five hours of talks.

The agreement opens the path for a second boost for Europe's ailing economic powerhouse, after 2008's first effort proved insufficient.

Chancellor Angela Merkel's CDU/CSU and the centre-left Social Democrats had been sharply divided on how best to respond to Germany's worst postwar slowdown.

The conservatives wanted 50 billion euros (70 billion dollars) released over two years including tax cuts and more infrastructure spending. The SPD had proposed a 40-billion-euro plan with tax hikes, not cuts, for the rich.

On Monday afternoon leaders of the two parties whittled down the proposals into the basis for discussions for a second session next Monday before the package is decided in mid-January, a government spokesman said.

Merkel says a first package unveiled last year was worth over 30 billion euros, but critics say this includes only 12 billion euros worth of new spending -- whistling in the wind in view of the global recession's severity.

After pressure from firms, experts, politicians on all sides and other countries -- Merkel has been dubbed "Madame Non" in some European quarters -- Berlin readied a bigger punch.

"It is no wonder that London's Prime Minister Gordon Brown and French President Nicolas Sarkozy prefer to meet without (Merkel) ... when it comes to dealing with the worst recession in the postwar era," the Handelsblatt daily said in an editorial on Monday.

But the task of deciding what to do was complicated by the fact that the CDU/CSU and the SPD are warily entering the fourth year of their uneasy "grand coalition" with an eye towards elections in September when they hope for a swift divorce.

There are also European elections in June and several state-level elections throughout the year including a highly significant one in Hesse, home to financial hub Frankfurt, on January 18.

On Sunday Merkel first had to smooth the waters within her own conservatives in talks between her Christian Democrats (CDU) and its increasingly fractious Bavarian sister party, the Christian Social Union (CSU).

After five hours the CSU appeared to have overcome Merkel's opposition to tax cuts as senior figures unveiled a package of measures including easing the tax burden, cuts in social security contributions and infrastructure spending.

"I think we have large overlaps (with the SPD) and that in a week we will be able to pass a sensible and appropriate package," CDU secretary general Ronald Pofalla told Deutschlandfunk radio on Monday.

The SPD, however, says cutting taxes will fail to get consumers shopping, and that Germany can ill afford to do so if it wants to keep its budget deficit within the limits set out in European Union rules.

On Sunday the party, which is trailing the CDU badly in opinion polls, unveiled its proposal for a package worth 40 billion euros that would include temporary tax increases for those earning more than 125,000 euros a year.

It also wanted 10 billion euros more invested in schools, kindergartens and roads, lower health insurance payments and higher child benefits.

And to boost Germany's ailing auto sector, the SPD wants a 2,500-euro "scrap premium" to prompt drivers to take old rust buckets off the road and buy new, greener cars, and to link car tax to a vehicle's emissions.

"Within the grand coalition I find we have concentrated too much on the tax issue. Tax cuts are not effective enough. There are better solutions," Frank-Walter Steinmeier, foreign minister and Merkel's challenger in September's elections, told the Sueddeutsche Zeitung daily.

"The issues of social security contributions and taxes will play a role, but what this is about is providing a stimulus for the future. The coalition is in agreement on this," Merkel had told state television before the talks.


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