Germany agrees on 50b euro stimulus plan

Reuters

JUMP START: German Chancellor Angela Merkel. The country's ruling coalition has reached agreement on a new 50 billion euro economic stimulus package aimed at helping Europe's largest economy through what could be its worst post-war recession.

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Germany's ruling coalition has reached agreement on a new economic stimulus package worth 50 billion euros aimed at helping Europe's largest economy through what could be its worst post-war recession.

Chancellor Angela Merkel's conservatives and their Social Democrat (SPD) partners agreed on the mixture of investment spending and tax cuts in six hours of negotiations in the chancellery, coalition leaders told journalists.

"We have a deal," SPD parliamentary floor leader Peter Struck told journalists. "It's a good day for Germany."

The two sides narrowed differences on tax relief measures during the course of the evening.

The focal point of the investment programme will be in infrastructure projects and education. There will also be incentives for new car purchases, coalition leaders said.

They also agreed to one-off payments of 100 euros (NZ$235.07) for every child in Germany – half the amount the SPD had sought.

Before the talks, the two sides were ready to agree on issues including boosting infrastructure projects and schools. There had been a lingering division on tax cuts, which some politicians say could lift Germany's deficit above EU limits.

The coalition parties want to arrest a recession that many economists say may be the deepest since World War 2, but they are promoting competing political agendas ahead of a September federal election that makes it hard to agree on a plan.

The government agreed a first package in November, which it said was worth 31 billion euros, but this was attacked by many at home and abroad as too modest. Critics also complained the figure was massaged and included previously announced measures.

However, the new plans have sparked budget concerns.

The coalition government has prided itself on balancing the public finances since 2005 but the new stimulus plan, combined with the burdens of higher unemployment and waning tax revenues risk undoing that progress ahead of the September election.

EU rules state that countries must not run a deficit bigger than 3 percent of gross domestic product (GDP) and that their debt must not exceed 60 percent of GDP. Germany violated the deficit rule for four straight years between 2002 and 2005.

- Reuters