Battling the Downturn: Historic German Stimulus Package Sails Through Bundestag

Germany's lower house of parliament passed the largest stimulus package in the country's post-war history on Friday. Passage through the upper house, however, is far from a sure thing.

The largest stimulus package in postwar German history -- and the second such package since the start of the current financial crisis -- was passed on Friday by the German parliament's lower house, the Bundestag. The bill calls for €50 billion in public investments, tax breaks and even cash handouts to junk old cars. It now heads for a vote by the upper house of parliament in a week. As a result of the package, Germany will have to take a record of €36.8 billion in new loans for 2009.

It's a deal: Chancellor Angela Merkel shakes hands with Finance Minister Peer Steinbrück as Karl-Theodor zu Guttenberg looks on.
DDP

It's a deal: Chancellor Angela Merkel shakes hands with Finance Minister Peer Steinbrück as Karl-Theodor zu Guttenberg looks on.

The ruling grand coalition of conservative Christian Democrats and left-leaning Social Democrats came to an agreement on the package in record time. Germany's new economic minister, Karl-Theodor zu Guttenberg, defended the towering amounts before the vote in Friday's session. "We're doing this for the people in our nation," he said, who can expect the government to intervene when markets fail because certain people have "sinned" out of excessive greed.

Until recently the projected public debt for 2009 stood at €18.3 billion. Finance Minister Peer Steinbrück, a Social Democrat, said "a stimulus like this can't be done without raising indebtedness." But he added that large portions of the debt could be financed -- and perhaps written off within 10 years -- using amortization funds.

One opposition party, the business-friendly Free Democrats (FDP), argued that the package would be an expensive way to do nothing. "The debts will remain," said FDP leader Guido Westerwelle, "but for the economy and for the people very little will come from this bill."

Fritz Kuhn, parliamentary floor leader for the Green Party, warned that social services would be hurt by the higher debt.

But the bill sailed through its first parliamentary vote just as the European Union statistics office released more stark economic numbers. The euro zone -- made up of the 16 countries using the common European currency, the euro -- contracted for the third quarter in a row at the end of 2008, reported the Statistical Office of the European Communities (Eurostat). Between October and December the zone's gross domestic product shrank by 1.5 percent, which was faster than expected. Economists had predicted a contraction of 1.2 percent to 1.3 percent. For all of 2008 the region was still in positive territory, with a GDP growth rate of 0.7 percent.

The German stimulus package still needs to pass in the upper house of parliament where the FDP could scrape together enough support to block it. The party has demanded more and quicker tax cuts and has threatened to veto the stimulus bill.

msm -- with wire reports

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