Merkel's Cabinet Backs 50 Billion-Euro Stimulus Plan
German Chancellor Angela Merkel's Cabinet agreed on a package of measures aimed at unlocking 50 billion euros ($65 billion) of investment to shore up the economy amid a global slowdown.
The two-year program ranges from tax breaks for buyers of new cars to greater financial help for improving buildings' energy efficiency. The measures will cost 23 billion euros in the four years through 2012, of which 10.9 billion euros will come out of the federal budget, the Finance Ministry said.
The government aims to “avert a credit squeeze for small and medium-sized companies,'' Economy Minister Michael Glos told a news conference in Berlin today after the Cabinet met. “It's a tailored economic growth package, not a classic stimulus program — we want to strengthen the power of the economy to resist the impact of the crisis.''
The government program for the economy, Europe's biggest, comes 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.
`Bold and Targeted'
“We will have difficulties in 2009,'' Merkel told reporters today. “We want to do something to counter this with investment incentives.'' 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 “bold and targeted'' and will act as a bridge to revive economic growth in 2010, she said.
Even so, the package “is too small and is designed mainly for capital spending instead of consumer spending,'' Stefan Bielmeier, an economist with Deutsche Bank AG in Frankfurt, 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 U.S. 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 Oct pay day loan lenders. 17.
U.S. Comparison
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. The package is equivalent to about 1.2 percent of gross domestic product, according to Bloomberg calculations.
U.S. 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, will have “double the effect of the Bush program,'' Jens Ehrhardt, who oversees $12 billion at Munich- based Dr. Jens Ehrhardt Kapital AG, told yesterday's edition of Handelsblatt newspaper.
The measures will hurt attempts to balance the federal budget by 2011, which will remain a “goal'' for the government in the next legislative period after the election, Merkel said in a speech to the BDA employers' federation yesterday.
National Elections
Finance Minister Peer Steinbrueck, a Social Democrat, told reporters today that the budget may be balanced by the end of the next legislative period, in 2013. Merkel's Christian Democrats and her Social Democrat coalition partners will contest national elections in September next year.
In a related development, a panel of fiscal experts meeting in Hildesheim, about 140 kilometers (90 miles) south of Hamburg, gave new estimates for tax revenue showing that total revenue will hold up next year in the face of the economic slowdown.
Revenue at federal, state and municipal level next year will be 572 billion euros compared with a May estimate of 571 billion euros, the Finance Ministry said, citing the panel's findings.
“Merkel needs every cent of tax revenue she can get next year — the crisis rescue packages are a huge burden on the budget,'' Rainer Kambeck, a fiscal policy specialist at the Essen-based RWI economic institute, said in an interview. “The forecast is surely a relief.'' RWI is a member of the tax panel.