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Germany

Opinion: Bold Stimulus Package Merits Mixed Grades

DW's Rolf Wenkel says Germany's uneven economic-stimulus package shows courage despite its flaws.

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"Test Your Strength" appears to be a midway favorite at the carnival that is this year's recession, but the first time the German government swung the hammer, the needle didn't make it past "weakling."

Rolf Wenkel

Now, government leaders -- who admit their earlier tries were insufficient -- have stepped right up and bought themselves another chance. They've decided to go whole hog, pledging 50 billion euros ($66 billion) over the next two years to help take the edge off the recession and spark the German economy.

Education gets an 'A' ...

But someone aiming to give the government marks for its various efforts would have to award grades running from an "A" all the way down to a "D."

The investment program alone, which mainly commands spending in educational institutions, is worth some 18 billion euros. It is brave, on-the-mark -- and worthy of an "A."

States and municipalities have been putting off investment for ages; now they can get to work. All they have to do is pull out their long-finished investment plans and dust them off. Which means the plans can be put into effect quickly, thus providing an actual economic boost.

In an effort to give citizens and businesses a break and to boost consumer spending, the state lowered the marginal tax rate and raised the limit for non-taxable income. It means there will be some nine billion fewer tax euros in government coffers.

... but the 'wrecking premium' earns a 'D'

But lowering the marginal tax rate, and limiting so-called "cold progression" -- an unfortunate system whereby the state increases its percentage claim on income in lockstep with an income increase -- was long overdue. It's a measure that should have been taken even without an economic crisis, and so it only deserves a "C."

The planned reduction in insurance contributions is likely to provide immediate relief not only to businesses and taxpayers, but also to retirees and low-income households. It will cost the state another nine billion euros -- and earns an "A" even though it is clear that the state cannot continue to prop up the ailing social system at this level.

On the other hand, hotly debated protective measures for businesses are problematic. In this case, the financial aid is aimed at sluggish bank lending, but not at the capital investments of the state in businesses, thus taking the touchy subject of state investment in business off the table. But if companies take the government up on its guarantees, it could certainly prove to be expensive for the state. Ultimately, then, it is impossible to assign a grade to this move.

Other measures are worthy of a "D" at best. Giving 100 euros per child to each citizen is unlikely to spark much consumer spending, and a "wrecking premium" for cars that are more than nine years old could give a leg up to the car industry -- but which one? The French and Japanese could profit as well as the Germans on that account.

Bold -- or just brash?

Taken all together, though, the whole package can be labeled a courageous effort. Not only because it is the largest economic-stimulus package post-war Germany has yet to create, but also because the state is narrowing its tax base -- and thereby risks losing some of its negotiating status.

It is courageous because it is the first time Germany has been willing to clearly breach the 40-billion-euro debt record set in 1996, and thereby cross the debt-ratio line set by the Maastricht Treaty. It is courageous in its self-confidence and belief in a better future.

But inordinate courage is often shown by those who are desperate. Time will tell just what kind of courage it took to strike this deal.

Rolf Wenkel is a business editor for DW-RADIO (jen)

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