European political and business leaders are to meet on Monday to discuss ways to revive the continent's flagging economy, but the leader of the biggest European economy won't be there.
German Chancellor Angela Merkel.Foto: REUTERS
Germany has come in for fierce criticism in some European capitals for its reluctance to adopt more aggressive measures to deal with the looming economic crisis. Now three of the biggest advocates of Europe-wide anti-recession measures are to hold crisis talks in London with European business leaders and German Chancellor Angela Merkel is not invited. British Prime Minister Gordon Brown is hosting the Global Europe Summit and French President Nicolas Sarkozy, who unveiled an ambitious stimulus package for his country on Thursday, and European Union Commission President Jose Manuel Barroso are at the top of the guest list.
The economic pow-wow comes just days ahead of an important EU summit in Brussels on Dec. 11 and 12 when the 27 member states will study European Commission proposals to give the sagging economy a boost with a €200 billion ($252 billion) spending plan.
While France and Britain have announced ambitious measures to stimulate their own economies, Germany has been criticized for its cautious approach. It has announced its own €32 billion stimulus package, the second part of which was passed in the parliament, or Bundestag, on Thursday. The package, though, has widely been criticized for being little more than a collection of existing measures already agreed upon by Merkel's government -- with only some €4 billion in new investments. Merkel has resisted calls to cut taxes, saying she does not want to see Berlin involved in a race to spend billions on boosting flagging economic growth.
In contrast, Sarkozy, whose country holds the rotating EU presidency, has been keen to show that he is a man to take the bull by the horns. On Thursday Paris announced a €26 billion stimulus package that targets investment projects rather than directly aiding consumers. The plan will push the French budget deficit to 3.9 percent of gross domestic product, way above the 3 percent usually demanded by the EU. However, the Commission has given member states the green light to exceed these limits temporarily in the light of the crisis.
That is something Berlin is reluctant to do and Germany has come in for withering criticism for not taking more aggressive measures, despite the fact that it has much more room for budgetary expansion than many of its neighbors. After a recent meeting with Merkel in Paris, Sarkozy said that "France is working on a solution, while Germany is thinking about one." German Finance Minister Peer Steinbrück, a member of the Social Democrats, looks unlikely to give into this kind of peer pressure. He told SPIEGEL that he opposed the state taking hasty measures. "Just because the lemmings have chosen the same path, doesn't automatically make it the right path."
'Action Is Needed Now'
But there are many critical voices from within the German political establishment. On Thursday the Green Party's deputy floor leader Jürgen Tritten accused Merkel of passivity. "It shows that she still hasn't understood, in terms of economic policy, what has to be done in a downturn. One has to increase the purchasing power of those who don't have much and not just wait."
And there is also snipping from within Merkel's own conservatives. Bavarian Governor Horst Seehofer of the Christian Social Union (CSU), the sister party to Merkel's Christian Democrats (CDU) has called on the chancellor a number of times this week to cut taxes immediately. "Action is needed now to avoid unemployment and plants closing down," Seehofer said in his most recent interview, with the tabloid Bild published on Friday. "And not when it's too late." Merkel has said she would not consider tax cuts until after the parliamentary elections in September 2009 but as the global financial and economic crisis threatens to severely affect a German economy that is heavily dependent on exports, many question the wisdom of such caution.
And like much of Europe, Germany hasn't seen the worst of the economic downturn by a long shot. Berlin has already pushed down its growth forecast from 1.2 percent to 0.2 percent for 2009. But even those paltry figures may have been optimistic. On Friday the German Central Bank, the Bundesbank, announced that it expected the GDP to shrink by 0.8 percent in 2009. Back in June the bank had expected the German economy to grow by 1.4 percent. Also on Friday Deutsche Bank's chief economist Norbert Walter warned that Germany could be facing a 4 percent contraction of the economy. Speaking to Bild newspaper, Walter said that the best case scenario would be a shrinkage of 1 percent and he joined the chorus of those pleading for tax cuts. He said the government should reduce VAT or sales tax to 16 percent from its current 19 percent "immediately for one year," in order to encourage consumer spending.
His pessimism is shared by many Germans. On Thursday a survey carried out for the ARD television network by Infratest dimpa found that 73 percent of those asked felt that the crisis would only get worse in the months to come. And the survey indicated that many in Germany have little faith in Merkel's ability to lead the country through the increasingly difficult times. Only 52 percent now believe "Merkel will ensure an economic upturn in Germany," a steep drop of 17 points from last year.