Under widespread pressure to act, Germany is set to inject up to 50 billion euros into its ailing economy.
The ruling coalition has agreed the framework of a deal after five hours of talks. But a dispute over possible tax cuts remains unresolved. The tax issue is central to differences between Angela Merkel’s conservatives and their Social Democrat partners. For the Chancellor, the question of tax relief is key to thinking over how to lower the burden on the German people. She has explained that the aim of the stimulus package is to secure jobs and boost investment. But the centre-left Social Democrats remain opposed to tax cuts for high wage earners. The party’s Frank-Walter Steinmeier is Merkel’s foreign minister. But he will stake his own claim to be Chancellor when Germans go to the polls in September. He has hailed the benefits of lowering social costs, saying this will help not only workers, but also entrepreneurs and pensioners. The German economy entered recession in the third quarter of 2008. A previous government stimulus plan was dismissed by critics as too small. Despite the differences, the coalition believes it will reach a deal within a week on how best to respond to Germany’s worst postwar slowdown.