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Merkel details economic recovery plan
Photo: DPA

Merkel details economic recovery plan

Published on: 04 Nov 2008 16:29 CET

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"In 2009 we will have bad news but we are going to do something so that things can and will get better in 2010," Merkel said in a speech to a congress of German employers in Berlin.

"With this package of measures we are building for people, as well as for employers, a bridge - a bridge for investment, for the protection of jobs until the economy gets going again under its own steam," she said.

The German economy, which accounts for a third of eurozone activity and is the world's top exporter, is widely expected to enter a serious slowdown and may already be in a technical recession if, as expected, output fell for the second straight quarter in the July to September period.

Merkel hopes to help Germany get through the slowdown with measures that will keep economic activity ticking over while at the same time lowering carbon emissions and keeping unemployment in check - an aspect of particular importance to the chancellor 10 months before an election.

Economists are sceptical that the government's initiatives will have much impact, however. An Emnid opinion poll in Bild am Sonntag suggested that 70 percent of Germans feel that such measures will prove futile.

The €25 to 30-billion package of "courageous, targeted and sustainable" measures, according to Merkel, are due to be approved by the cabinet on Wednesday.

They include the state-owned KfW bank providing cheap loans to small- and medium -sized Mittelstand firms - the backbone of the German economy - that have been starved of credit by banks hit by the financial crisis, Merkel said.

The government last month put in a place a €480-billion ($605-billion) rescue package for banks with fresh capital and loan guarantees, and has set up a hotline for companies unable to secure loans.

Other measures, Merkel said, include tax breaks for companies and individuals, bringing forward investment in new roads and railways and sparking construction activity by making public buildings such as schools and hospitals more energy efficient.

The government also plans to help out the automobile industry, hit hardest so far by the global economic slowdown, including tax breaks for low-pollution vehicles as well as changing to an emissions-based car tax system.

Merkel that the government would boost training programmes for older and

less qualified workers, and extend the period during which certain workers laid off can receive unemployment benefits. The number of unemployed in Germany fell below three million in October for the first time for 16 years, data showed last week, and the government will be hoping that such measures will help to mask an expected rise in job seekers ahead of next year's vote.

Merkel conceded however that the stimulus measures and the resulting rise in state spending - coupled with an expected fall in tax revenues and costs from the banking rescue package - would mean that the government would not meet its target of achieving a balanced federal budget in 2011.

"If it had not been for the international crisis we would have achieved a balanced federal budget in 2011," Merkel said. "Despite the crisis, it remains our aim to continue with budgetary consolidation and I say here that we want to achieve this target in the next legislative period" which runs until 2013.