The German Parliament signed off on Friday on the nation's 2009 budget which calls for substantially higher borrowing as the country gears up for a tough economic year and national elections.
Merkel had a reason to smile on Friday
The budget, which the was agreed to by the lower house of parliament, substantially boosts borrowings to meet government plans for spurring economic growth amid signs that a sharp contraction has taken hold in Europe's biggest economy.
The 2009 budget of Chancellor Angela Merkel's coalition government calls for raising new borrowing of 18.5 billion euros ($23 billion), far higher than the 10.5 billion euros which Finance Minister Peer Steinbrueck had forecast at mid-year.
But since then the world financial crisis has pushed the global economy into a dramatic downturn, forcing Berlin to join other governments around the world in unveiling a stimulus package aimed at underpinning economic growth.
The government has also unveiled a 500-billion-euro rescue plan to help the nation's financial sector limp through the current upheaval.
Berlin is also under pressure from the European Union (EU) to contribute to a planned massive 130-billion-euro package aimed at helping to fire up economic growth in Europe.
"We are prepared so our country can defy the storm," said Economics Minister Michael Glos.
But a steady stream of economic data has underscored how quickly the economic slump was engulfing the nation. Business confidence in Germany dropped to its lowest in nearly 16 years in November, a key survey released by the Munich-based Ifo economic institute said this week.
At the same time, economists have been forecasting a rise in unemployment as companies stop hiring or begin laying off workers in the face of the economic slowdown.
Berlin's forecast for a feeble 0.2 percent growth rate next year is somewhat optimistic compared to the projections by private economists.
Many economists believe that German economic growth will contract next year after the nation tipped into a recession during the third quarter this year.
A decline in tax revenue as a result of a contraction in economic activity as well as the government's decision to shelve privatizations including the planned partial sell off of the nation's railway company, Deutsche Bahn AG are also playing havoc with budget planning.
As a result, draft budget tax revenue projections have been revised downward sharply by about 4.6 billion euros to 244.1 billion euros.
The prospects of a tough economic year in 2009 comes as the country's political parties start to gear up for next year's national election.
The government expects the 12 billion-euro-package of stimulus measures agreed to by Merkel's Cabinet this month to result in a bigger 50-billion-euro boost to consumption and investment. The package includes steps to encourage investment in energy-efficient buildings and incentives for car buyers.
But Berlin argues when previously announced measures such as higher family allowances and tax breaks for children are included, the domestic stimulus package is valued at 32 billion euros.
In addition, the bleak economic outlook means Merkel's government will be struggling to meet its target of balancing its budget possibly by 2011.