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Europe

Merkel Agrees to EU's Multi-Billion-Euro Bailout Despite Doubts

German leader Angela Merkel is giving her backing to a 200-billion-euro plan to dig Europe out of recession after her finance minister said tossing money around would only increase the debt burden.

German Chancellor Angela Merkel delivers her speech during the party congress of the Christian Democratic Union, CDU, in Stuttgart, Germany, Monday, Dec. 1, 2008.

Chancellor Merkel has been under increasing pressure to tow the EU line on economic issues

As EU leaders gathered in Brussels for a summit, Germany's Finance Minister Peer Steinbrueck added to simmering tensions over the Europe-wide stimulus plan by offering up a withering criticism of Britain's economic policy.

But Chancellor Merkel tried to strike a more conciliatory tone than her famously sharp-tongued finance minister, saying that "we support the European Commission's initiative."

With the specter of recession looming large, the commission wants heads of state and government to sign up to its proposed plans at the summit to pump 200 billion euros ($260 billion) into the European economy, according to a draft of the text obtained by Reuters news agency. Leaders are expected to pass the stimulus package on Friday, Dec. 12 as the two-day summit draws to a close.

The plan, based on a series of national and EU measures worth 1.5 percent of the 27-nation European Union's gross domestic product (GDP), would ramp up public investment across Europe and allow for some taxes to be eased.

But the chairman of the group of finance ministers from countries that use the single currency said leaders should not get too caught up over the size of individual contributions by different countries.

Jean Claude Trichet, President of the European central bank, left, and

Junker, right, with ECB president Jean Claude Trichet

"I don't think it would be wise to overly concentrate and focus on the figure on the envelope," Luxembourg Prime Minister Jean-Claude Juncker, chairman of the Eurogroup, told reporters.

According to the EU commission, the euro zone as a whole is now in recession and likely to be so throughout 2009.

But while Juncker played down differences over the size of individual contributions, EU Economics Commissioner Joaquin Almunia said Europe's biggest economy should stump up more than it has offered so far.

"As the EU's biggest economy with a balanced budget, Germany should make the difference with its contribution (to give) a boost to the economy of Europe," Almunia told German newspaper Tagesspiegel.

Germany reluctant to increase contributions

The German government, which is itself divided over how best to tackle the recession, has so far resisted the idea of contributing more than the 31 billion euros over two years that Berlin judges necessary to revive the German economy.

In an interview with Newsweek magazine, Steinbrueck made clear Berlin's unease about funding stimulus packages.

German Finance Minister Peer Steinbrueck

Steinbrueck's comments have caused a minor storm

"When I ask about the origins of the crisis, economists I respect tell me it is the credit-financed growth of recent years and decades.

"Isn't this the same mistake everyone is suddenly making again, under all the public pressure?"

Steinbrueck was particularly scathing about a 20-billion-pound (22.5-billion-euro) stimulus plan recently approved by Britain. "All this will do is raise Britain's debt to a level that will take a whole generation to work off," he said.

Distancing herself from Steinbrueck's comments, Merkel hinted that Berlin was prepared to make a bigger contribution to the European package.

"Germany is aware of its responsibility as a large economy and we are going to consider what we can still do, especially in light of the American (stimulus) measures that will come in January with the new president," she said.

"We believe that every country has to give an important stimulus. Germany has already done this in a first step," Merkel said. "For us, it's all about saving jobs in Germany."

Germany's stance irking European partners

Britain's Prime Minister Gordon Brown with France's President Nicolas Sarkozy

Brown and Sarkozy have criticized Germany's caution

Germany has faced intense pressure from British Prime Minister Gordon Brown, French President Nicolas Sarkozy and European Commission chief Jose Manuel Barroso to boost domestic consumption, but has refused to indulge in borrowing and deficit spending.

Brown dismissed Steinbrueck's criticism and said the comments were "internal German politics" and Merkel said as she arrived in Brussels that "we support the European Commission's initiative."

Because some governments cannot afford to make a very big contribution to the EU stimulus effort, some countries will have to put much more in than the average contribution.

Of the stimulus target of 1.5 percent of GDP, 1.2 percent is supposed to consist of various national measures. Almunia said governments have so far committed less than that, with all the national measures adding up to only 0.8-0.9 percent.

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