The program to kick-start the sluggish Germany economy has most of the money going into research, tax breaks for small and medium-sized companies and infrastructure projects.
Merkel and company hopes the plan will have immediate effect
German chancellor Angela Merkel delivered more details on Tuesday about a 25-billion-euro growth and investment program which the government approved at its two-day strategy meeting near Berlin.
The chancellor says the 25-billion-euro ($30 billion) program will be spread out evenly over the next four years and hopes for an immediate impact on the domestic economy, which despite favorable global cyclical conditions has been growing slower than in most other European nations.
Ministers of the grand coalition government of Christian and Social Democrats have agreed to spend an extra six billion euros alone on research and development projects. This will go toward ensuring that German spending on research accounts for at least 3 percent of GDP by 2010, in keeping with European Union guidelines.
Angela Merkel is confident that her shot in the arm for German economy will help dispel the gloom that has enveloped it for so long.
“We’ve come a little bit closer to our target of getting Germany back to being one of the top three economic performers in the European Union," Merkel said. "We need more growth to create more jobs, and our supplementary measures to reduce bureaucracy in the country will contribute towards even more growth."
She added that she hoped German industry would "listen to the signals" being sent out with the investment program and do what it can to improve the situation on the labor market.
Able to put differences behind them
Social Democrat Vice Chancellor Franz Müntefering agreed. He said the two-day strategy meeting has shown that the coalition partners, traditionally political rivals, are able to put their ideological differences behind them and hammer out deals that are in the interest of the whole country.
The agreement shows a willness to cooperate, Müntefering said
“We are in agreement that sustainable budget consolidation cannot be achieved without more economic growth," said Müntefering. "I’m aware of all the skeptics who say that 1.5 to 1.8 percent of growth this year will not resolve all of the problems on the labor market. We know this, too, but it’s a beginning."
The investment program also includes tax incentives for capital investment and private home improvement as well as a better deal for families with young children. In addition, the coalition partners have reaffirmed their resolve to ensure that Germany's public deficit meets EU criteria by no later than 2007. These criteria which Germany has breached several years in a row state that borrowing should not exceed 3 percent of GDP.
Shows that Germany wants to cooperate with EU
This is something that visiting EU commissioner for industry, Günter Verheugen, was pleased to hear.
“I think the fact that I was invited to the meeting is a good sign," he said. "It indicates the new German government’s willingness to cooperate with the European Commission and stick to the EU’s deficit rules in 2007.”
Verheugen said that his invitation signaled a willingness from Germany to cooperate with the EU
The 25-billion-euro investment program has met with a mixed response from opposition parties and the German business community. Opposition free-market liberal General Secretary Dirk Niebel says the government has got it wrong.
“This policy of laying on special investment programs so you get a blip on the screen has failed so many times in the past," he said. "It’s so typical of Social Democrat economic thinking. It means that the state ends up spending taxpayers’ money more or less indiscriminately. No thought is given to how the state could both reduce expenditure and cut lower taxes for ordinary people at the same time, which really would give them extra spending money.”
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