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Economic Boost

DW staff (th)December 16, 2008

German Chancellor Angela Merkel acknowledged that Germany's current 31 billion euros ($42.36 billion) stimulus package might not be enough, but said she wants to wait until January before putting forward a new proposal.

Chancellor Angela Merkel motions with her hands
Merkel wants to increase work on Germany's infrastructureImage: picture-alliance/ dpa

Merkel acknowledged in a speech on Tuesday, Dec. 16, that the government's stimulus package "might not suffice." But Merkel hinted that she wants to coordinate future efforts with the incoming Barack Obama administration.

If the financial crisis is such that the US will consider further measures after Obama takes office on Jan. 20, "it will also be right to put together a second program in Germany at a similar time," she added.

Merkel remains under pressure from other European countries to move quickly with cut taxes or vouchers to encourage spending. Merkel continues to oppose such plans, even though they are being undertaken elsewhere in Europe.

Paving the road to recovery

Women with shopping bags
Some want Merkel to put more money in consumers' handsImage: picture-alliance / Chad Ehlers

Instead, Merkel favors tackling a backlog of road projects to stimulating the economy, she said in a speech Tuesday to the Center for European Economic Research, a think tank in Mannheim, Germany.

She called on Germany's states to send in their project lists as soon as possible, wanting to get going by the early spring. Most of the states have a backlog of detailed engineering proposals for projects that have been waiting for federal funding.

Quoting government sources, press reports have said Berlin is preparing to invest 20 billion to 30 billion euros in a fresh economic stimulus plan that will include public investment and consumer incentives, according to AFP news agency.

"We will take action again in January -- another few billion could come together," Merkel was quoted as saying by the Dow Jones newswires.

Merkel said the fresh investment could go toward infrastructure improvements including roads, broadband communications networks and renovation of schools, as well as subsidies for temporary jobs.

No time to lose?

Man looks at DAX chart
Economists are predicting that 2009 will be a rough year for GermanyImage: AP

A report in the daily Frankfurter Allgemeine Zeitung said on Tuesday that the government fears the German economy could contract by 3.0 percent or more next year, marking the worst recession in German post-war history.

The BdB commercial banks' association backed up this assessment, predicting that Germany will suffer its deepest recession since World War Two next year.

As long as the bad news about Germany's economy continues, it's unlikely that European allies such as France will let up pressure on Merkel to do more and do it quickly.

Yet with national elections scheduled for next fall, Merkel is taking a cautious approach. That has lead to criticism from those in her party who want to see the government do more.

Economy Minister Michael Glos emphasized that the government still has the scope to increase its economic stimulus package if necessary. Glos, a member of the Christian Social Union (CSU), the Bavarian sister party to Merkel's Christian Democrats (CDU), has repeatedly argued in favor of cutting taxes.

A poll done for Germany's Stern magazine and RTL television showed that support for Merkel and her party continues to drop due to concerns over the financial crisis.