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New German stimulus package smaller than expected
Photo: DPA

New German stimulus package smaller than expected

Published on: 24 Dec 2008 12:37 CET

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Angela Merkel's government unveiled a package in October to boost growth but with the world entering what economists are predicting will be a painful slowdown, the chancellor has been under pressure to do more.

Her cabinet is due to discuss on January 5 additional steps, and representatives from Germany's 16 states have until then to come up with concrete proposals on ways to use additional funds.

Press reports have indicated that the new programme could see the government pump as much as €40 billion ($55 billion) into the economy.

But the finance minister of one of the states, Ingolf Deubel from Rhineland-Palatinate, told the local newspaper Rhein-Zeitung after a meeting in Berlin on Tuesday that the the volume would be closer to €25 billion.

According to the Süddeutsche Zeitung daily on Wednesday, the government is worried that spending any more could see its budget deficit balloon so much that it would be in breach of European Union rules.

Germany is already in recession and the slowdown is expected to deal a heavy blow to its public finances because of falling tax receipts and extra government spending on unemployment benefits, the paper said.

A spokesman for the German Finance Ministry, contacted by AFP, said that "there is not yet any decision, so there are not yet any figures." The new package is not due to be unveiled until late January.