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Germany

Germany Split Over Measures to Boost Slowing Economy

German Chancellor Merkel's coalition is divided over measures to boost investment in specific sectors of Europe's biggest economy as it grapples with slowing growth and the specter of recession, a report said Sunday.

An employee at the Mercedes factory in Sindelfingen

The shine's coming off the sputtering German economy as the financial crisis bites

The German government, an uneasy coalition of Merkel's conservatives and the Social Democrats (SPD), is drawing up a series of measures to boost investment in specific sectors of the economy measures as the German central bank warned the financial crisis and a sharp global slowdown had already left their mark.

Last Monday Chancellor Angela Merkel asked ministers to develop a stimulus package for the economy, stressing that any measures would be "targeted."

The government has said the auto and construction industries could get help. A working group has agreed to boost building renovation work and infrastructure projects, the weekly Der Spiegel reported, without citing sources.

But according to a German newspaper report on Sunday, Oct 26, a rift is emerging in the ruling coalition between the finance and economy ministers about the kind of stimulus measures to take and where to apply them.

Finance minister rejects tax cuts

Finance Minister Peer Steinbrueck, a Social Democrat, rejects proposals by the conservative economy minister for income tax cuts and making health insurance contributions tax-deductible from 2009, the Welt am Sonntag paper reported.

German Finance Minister Peer Steinbrueck

Steinbrueck has warned the financial crisis could drag on until late 2009

Supported by Chancellor Merkel, Steinbrueck, believes the German economy -- the world's third biggest -- is too large to be helped by "1980s recipes" and that measures stimulating investment would work better, the paper said.

"Ten billion euros ($13 billion) in tax cuts won't change anything in an economy with an output of 2.5 trillion euros," the paper cites government sources as saying.

Separately, news magazine Der Spiegel reported over the weekend that the Social Democratic Party, including Steinbreuck prefers measures to protect jobs. The magazine said the party was pushing for a reduction in unemployment insurance contributions.

Steinbrueck and Economy Minister Michael Glos were due to present their proposals to a cabinet meeting early this week with a view to a package of measures being approved by November 5, the paper said.

Gloomy economic news

The wrangling over a stimulus program for specific sectors of the economy comes amid a slew of bad economic news.

German luxury carmakers Daimler and BMW said over the weekend they would temporarily close factories as a result of slumping sales. General Motors' German arm, Opel, has also announced output cuts, as have Volkswagen's Spanish subsidiary Seat and Czech subsidiary Skoda.

An employee at a Mercedes factory in Sindelfingen

Germany's carmakers have been hit hard by the economic crisis

Earlier this month, Glos slashed his forecast for growth in 2009 to just 0.2 percent from his previous projection of 1.2 percent, the slowest rate of growth since the 2003 recession when the German economy contracted by 0.2 percent.

Finance Minister Steinbrueck too predicted a gloomy future for Germany over the weekend, saying the crisis would last at least until late 2009 and it would take years for Germany to guage the real costs of its massive bank bailout.

On Friday, Germany's Deutsche Bank predicted a severe recession in Germany. The bank's research arm expects output in Germany -- which makes up around a third of the eurozone economy -- to shrink by 1.5 percent next year, Saturday's Berliner Zeitung reported.

Ulrich Kater, chief economist of the Dekabank told newspaper Bild that the German economy had already slipped into a recession in the third quarter of 2008.

Over a week ago, the German government rushed through a 500-billion-euro bailout package for its troubled banks. Since then, only the Bavarian public bank, BayernLB, has sought state aid, requesting 5.4 billion euros.

Media reports said two more regional public banks were considering asking for help under the government's rescue package.

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