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German coalition faces battle on new stimulus plan
Published in Saudi Press Agency on 05 - 01 - 2009


Germany's coalition parties meet
on Monday to hammer out a framework for a second stimulus
package worth up to 50 billion euros to help Europe's biggest
economy weather its worst recession since World War Two, reported reuters.
The parties, including Chancellor Angela Merkel's
conservatives and the Social Democrats (SPD), agree on boosting
spending on infrastructure projects to save jobs but are at
loggerheads over other details, including possible tax cuts.
The political stakes are high as voters will deliver their
verdict in a federal election in September.
A leading member of Merkel's conservatives said the package
could total about 50 billion euros ($69.63 billion).
"The package we (the conservatives) will present ... will
have a volume of around 50 billion euros for 2009 and 2010
together, that's a considerable impulse," Volker Kauder,
parliamentary leader of Merkel's conservatives, told ARD public
television.
He said Germany had room to spend about 25 billion euros per
year without busting the EU's stability and growth pact rules.
The SPD has said it favours a programme worth about 40
billion euros.
Previously, government officials have said the second
package is likely to total around 25 billion euros, although it
was unclear what timeframe they were referring to.
Monday's meeting, due to start at 1300 GMT, will lay the
groundwork for a deal between coalition parties but another
meeting is scheduled for Jan. 12 at which the details are likely
to be agreed.
The coalition parties have different priorities for the
measures they want to bring in but both agree government
spending should go towards infrastructure projects and schools.
"I think we have a good deal of overlap and that in a week's
time we will achieve an appropriate and sensible result," Ronald
Pofalla, General Secretary of the Merkel's Christian Democrats
(CDU), told German radio.
Late on Sunday, Merkel bowed to pressure from her
conservative allies from the southern state of Bavaria who
insisted that tax relief be included in the package.
The two conservative parties agreed to propose lifting the
income tax threshold to 8,000 euros from 7,664 euros and start
eliminating "cold progression", under which taxpayers are bumped
up into higher tax brackets even if real incomes have not grown.
This process happens in Germany because tax brackets are not
automatically adjusted for inflation.
The SPD supports cuts in health insurance fees, higher child
benefits and also wants incentives for people who get rid of
old, fuel-guzzling cars. But it is against tax cuts and has even
said it wants to raise the top income tax rate.
"It will be very difficult to get a common denominator on
tax," Andreas Nahles, deputy leader of the SPD, told German
radio.
Merkel's government pushed through a 31 billion euro package
last year but critics have attacked it for being too modest, as
it contained a number of measures which had been already planned
and had only 12 billion euros of new spending.
Germany entered recession in the third quarter of last year
and many economists predict the economy will shrink by 2 percent
or more this year, which would be the worst annual performance
since World War Two.


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