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Rescuing Carmakers

DW staff (dfm)December 29, 2008

Germany's foreign minister and contender for the country's chancellery, Frank-Walter Steinmeier, has said the government should create incentives for people to buy cars.

German Foreign Minister Frank-Walter Steinmeier
German Foreign Minister Frank-Walter Steinmeier says tax cuts would boost car salesImage: AP

Steinmeier told the Welt am Sonntag newspaper that the German government also needed to prepare an aid package for German automakers suffering under the global economic downturn.

The auto business is Germany's largest industry and biggest export, prompting Steinmeier to label it "the spinal cord of (Germany's) economy."

"We must also stimulate the purchasing of automobiles with state incentives," such as tax breaks, said the foreign minister.

One in seven German workers is directly or indirectly involved in the car industry, the German auto manufacturers' association VDA has said.

New car registrations in Germany fell 18 percent in November against figures from the same month last year, VDA said last month.

Steinmeier, who is the Social Democrats' (SPD) candidate expected to challenge incumbent Chancellor Angela Merkel in general elections next September, has long favored government protection of the German auto industry.

Government under pressure

German Chancellor Angela Merkel
Chancellor Angela Merkel insists her government is doing enough to fight recessionImage: AP

Merkel, meanwhile, has so far been reluctant to pledge financial aid to German carmakers, such as GM-owned Opel, on fears the funds could find their way to parent companies based abroad.

The German government and Opel have put on pause talks over a potential aid package involving up to 1 billion euros ($1.43 billion) in loan guarantees. The negotiations are set to resume early next year.

In recent weeks Merkel has been forced to dismiss claims that Europe's largest economy was not doing enough to deal with the financial crisis, saying Germany would not be drawn into "a competition for subsidies and the spending of billions" in state aid.

Berlin's contribution to an EU-wide bailout scheme is a 32-billion-euro stimulus package over the next two years which is expected to result in a 50-billion-euro boost to consumption and investment, Merkel has said.

The chancellor has called a cabinet meeting for Jan. 5 to discuss a second possible stimulus package.

Steinbrueck rejects tax cuts

German Finance Minister Peer Steinbrueck
Finance Minister Peer Steinbrueck has spoken out against tax cutsImage: AP

German Finance Minister Peer Steinbrueck has signaled that any package to come from the January cabinet talks could include measures for the German auto industry, news agency AFP reported Monday.

The minister rejected, however, the inclusion of tax breaks or shopping vouchers in a second package to help boost spending.

Steinbrueck said that cutting people's health insurance contributions would be much more effective in putting cash in consumers' pockets than cutting taxes because half of all households already paid zero income tax.

He stressed that a second package would not be finalized at the January meeting.

"No decisions will be taken on Jan. 5," Steinbrueck said. "There are currently different talks going on. I am trying to ensure that we do not totally lose sight of the basic tenets of budget consolidation and fairness towards (future) generations, and that we act with the necessary prudence."