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Germany

Germany's Christian Democrats Agree on Stimulus Package

The party of Chancellor Angela Merkel has agreed on a second stimulus package to bolster the economy in the face of the global financial crisis. Other parties in the governing coalition are expected to follow.

Angela Merkel

Angela Merkel speaking in Erfurt as her party agrees on a second economic stimulus package

The 10-point-plan, agreed upon on Saturday, Jan 10, by the Christian Democrats (CDU) in the central city of Erfurt, is aimed at shoring up the economy and helping Merkel's campaign for chancellor later this year. She faces re-election in September.

The plan is expected to cost up to 50 billion euros ($68 billion) over the next two years, and will include investments in schools and infrastructure projects to protect jobs.

The plan will also set up a "Germany fund" which will help struggling firms get credit. It could offer guarantees up to 100 billion euros.

construction site

One focus will be on infrastructure projects

Taxes and health insurance contributions would be lowered and a change in the car taxation system from July would provide drivers incentives to switch to fuel-efficient vehicles.

It would raise the threshold for income tax and reform the system to make sure taxpayers are not automatically bumped into higher tax brackets even if their real incomes have not grown.

There would also be a program to extend broadband Internet access.

Second time's a charm?

Merkel's conservatives and her governing coalition partners, the Social Democrats, launched a first stimulus package in November. But it was widely criticized as being too meager. While Berlin said the package was worth 31 billion euros ($42 billion), many countered that the numbers were massaged and it really amounted to much less.

Germany could see a severe economic contraction in 2009

Germany could see a severe economic contraction in 2009

The final amount of this second package will only become clear after Merkel's Bavarian sister party, the Christian Social Union (CSU), and the SPD agree on the plan in the coming days.

Speaking in Erfurt, Merkel said it was unclear how Europe's biggest economy, currently in recession, would perform over the coming year.

"I can't give you any binding answers," she said after the CDU agreed on the plan.

Many analysts has said they predict the German economy will contract by a record margin this year, with some saying GDP could shrink by four percent or even more. That would be an unwelcome record, since the German economy has never contracted by as much as one percent over a full year since World War Two.

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