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The World From Berlin

Merkel Puts on the Bailout Brakes

A day after German Chancellor Angela Merkel criticized a proposal from Brussels for an EU-wide stimulus package, commentators in the German media are divided about Merkel's can't-do attitude.

Angela Merkel may be famous for her political caution, but her penchant for prudence does not always win her admirers. After comments the chancellor made on Wednesday that seemed to question the wisdom of the EU-wide economic stimulus package supported by European Commission President Jose Manuel Barroso, many in the German media are proclaiming the proposal a dead letter.

But German commentators are more divided about whether the Brussels-backed package was a good idea in the first place. As the EU zone heads into recession, there remains significant disagreement about the extent to which Germany ought to throw caution to the wind in combating the recession, ditching fiscal responsibility in favor of pursuing an aggressive economic stimulus.

On Monday, Merkel joined with French President Nicolas Sarkozy in opposing a coordinated cut of their respective countries' sales tax (VAT) after British Finance Minister Alistair Darling announced the UK would be slashing its own by 2.5 percentage points.

Merkel confused some commentators by seeming to send mixed signals in a budget speech given on Wednesday in which she sounded both optimistic and pessimistic notes."Germany is very strong," she underlined, while simultaneously warning that "2009 will be a year of bad news." Although the double message provided ample opportunity for editorial word play in Germany's newspapers, it hardly suggested a coherent approach to dealing with the country's economic troubles.

The business newspaper Financial Times Germany writes:

"Given the rapid pace of this downturn, the government is behaving downright negligently. It isn't just preventing us from using anything more than a lean little stimulus package to combat recession in our own country. The German blockade approach is also slowing European progress in finding an appropriate and, most importantly, rapid answer to the crisis."

"With its suggestions for a coordinated stimulus package, the EU is going a step further than the government wants. Nevertheless, out of respect for one of the most powerful member states, Brussels has to forgo some of the necessary recommendations. For instance, amid embarrassment the Commission took out recommendations such as the EU-wide trimming of value added tax, following the British model, which would been a sharp impulse for growth. In view of the resistance from Berlin, explicitly stipulation (such a cut) would have discredited the whole package and made a unified approach impossible."

"On one point, the chancellor is correct: Germany is, in fact, very strong. The country has the largest economy in the EU and, thanks to the consolidation policies of Merkel's governing coalition, it presides over a solidly financed national budget, in opposition to almost all the other big EU states. The German government can afford, then, to devote more money to combating the recession."

The right-leaning Frankfurter Allgemeine Zeitung writes:

"After the bank bailout, Chancellor (Merkel) has been feeling her way through crisis management carefully. Balancing possibilities requires courage in a time when more and more governments, faced with a flood of bad economic news, are heading for quick 'grand solutions' without regard to the negative impact on budgets or the disastrous consequences for competitiveness. In so doing the big bailout crowd runs the risk of encouraging worry and, with it, procrastination on the part of economic actors. We should be thankful to Angela Merkel for her calm probing, for grand solutions are difficult to audit and to calculate; they conceal big risks -- and a glance at the writings of Keynes won't deliver any panaceas. Now as before there are signs of life from the German economy, signs supported by the drop in inflation rates and energy prices."

"As prudent as the chancellor has been in dealing with the stimulus program, she has been myopic when it comes to the European stability pact. Why she has launched a surprise attack along with French President Sarkozy to devalue the pact is incomprehensible and unforgivable. After all, the recently relaxed rules aimed at ensuring budget discipline in the euro zone already give enough elbow room for higher deficits, if that's what the economic situation demands. With the Franco-German assault on the stability pact, an important bastion of stability has fallen. In uncertain times, that's bad news."

The conservative newspaper Die Welt writes:

"Angela Merkel has often scored victories through the magic of deceleration… But deceleration should not become idleness. In yesterday's parliamentary debate over the budget, Merkel held fast in her resistance to immediate tax cuts. It wasn't only the (liberal) Free Democrats that protested. The Christian Social Union (allied with Merkel's Christian Democrats) have also found their theme should they want to clearly separate themselves from Merkel on this question."

"The chancellor warned the people once again yesterday about bad news in the coming year. But she also broadcast optimism: in 2010 things will get better again. Deutschland is 'very strong,' businesses are well-equipped. That's true. But the ones who have been increasingly burdened over the last few years is the humble taxpayer. If he is supposed to spend and invest more in spite of the crisis, then Merkel must give more elbow room to the people. As swiftly as possible."

The center-left Süddeutsche Zeitung writes:

"The level of the discussion in this country about the wisdom or folly of a stimulus program has been meagre. Instead of first considering what the criteria for such a program ought to be, all parties are contenting themselves with taking old ideas and presenting them as new. What we're getting is a hodgepodge of proposals which in the best case won't damage growth, but which will also certainly do no good to reverse the current trend."

"If we really want to put people in a buying mood, than we simply have to give them some money. If every citizen were given a climate-voucher worth €250, which could be used until Jun. 30, 2009 to buy energy-saving household and garden appliances, it would not only boost consumption, it would also promote climate protection… In order to stimulate corporate investment, they should be allowed as an exception to deduct the cost of new machine purchases in 2009 from their taxes."

-- Christopher Glazek, 16:00 CET