Berlin Mulling Further Stimulus Steps
German Chancellor Angela Merkel has said she's not ready to cut taxes and take further action to boost the economy, and her wait-and-see attitude has provoked criticism both in Germany and abroad.
But behind the scenes, her coalition is drafting a fresh program to avert recession in the wake of the financial crisis, according to a report on Wednesday in Süddeutsche Zeitung newspaper.
Citing unnamed sources, the newspaper said Merkel's conservative Christian Democrats (CDU) and their coalition partners, the center-left Social Democrats (SPD), were thinking about additional measures on top of the €31 billion package already announced which economists say may not suffice in the face of the looming downturn.
The heads of the two parties are scheduled to meet on January 5 to discuss whether tax cuts or other stimulus measures are required for Europe's largest economy.
Only last weekend Merkel and Finance Minister Peer Steinbrück, a Social Democrat, had rejected calls for tax cuts, but Merkel appeared to soften her position at the annual Christian Democrat party conference in Stuttgart on Monday and Tuesday.
The Süddeutsche report said that SPD members of parliament were suggesting boosting domestic demand by issuing a €500 voucher to every adult to finance purchases of consumer goods or settle workmen's bills.
The voucher would only take effect if it were supplemented with an additional €200 of the recipient's own funds, according to the draft proposal. People on welfare benefits would not have to come up with their own funds to spend the voucher.
The proposal had been drafted by economist Karl Lauterbach and had not yet been agreed by the party leadership, the newspaper added. The scheme would cost the state €35-40 billion and would have to be financed through debt. In addition, both parties are discussing a fresh program to refurbish public buildings.
Carmakers Call for Action
Business leaders and some economists criticized the idea for a voucher-based attempt to encourage consumer spending, saying it would only provide a short-lived economic boost.
Roland Koch, the CDU governor of Hesse, said the debate itself was counterproductive because the mere expectation that vouchers will be issued might prevent people from spending their own money ahead of Christmas. Other leading CDU members said they were in favor of increasing public investment in roads and schools.
Meanwhile, the VDA association of German carmakers called on politicians to take action and forecast that new car registrations would fall to 2.9 million next year from 3.1 million predicted for this year.
"The auto markets have entered a downturn that is unprecedented in its speed and severity," VDA President Matthias Wissmann said in a statement. "The crisis isn't confined to any one country, it has engulfed all important markets worldwide."
All German manufacturers were cutting back their output and this would have an impact on jobs, Wissmann added. "It's now up to all parties involved—the government, banks and industry—to be aware of their responsibility and to do a good job," he said.
EU finance ministers on Tuesday gave watered-down support for the broad terms of a proposed EU plan to avert recession, removing references to the €200 billion figure initially put forward by the European Commission last Wednesday.