Germany Backs New EU Stimulus Plan

Chancellor Angela Merkel supports a proposal to pump 130 billion euros into Europe's faltering economy

By Christian Reiermann

German Chancellor Angela Merkel has thrown her support behind a potential Europe-wide economic stimulus package. Government spokesman Ulrich Wilhelm told the Financial Times Deutschland that "we can imagine a package totalling around 1 percent of the EU's gross domestic product."

Wilhelm said the plan should be financed with EU funds as well as additional monies from the bloc's 27 member-states. But, the government spokesman said, economic stimulus programs already passed or being considered by EU member states—such as the German package currently being looked at in Germany's parliament, the Bundestag—will be counted against the total.

On Wednesday, a source told us that the European Commission was considering a package totalling 1 percent of the EU's GDP, or roughly €130 billion, to breathe life into the region's economy. Last week, the economy of Europe's common currency zone, also called the euro zone, officially entered recession. Germany's economy too has seen two quarters in a row of negative growth.

The European Commission declined to confirm the report, calling it "speculation." "We will be presenting a plan with suggestions to stimulate the economy next Wednesday. For the moment, it is too early to talk about the size and the reach of such a plan," a spokesman for European Commission President José Manuel Barroso said on Wednesday evening. "A political decision has not yet been made."

But German Economics Minister Michael Glos confirmed on Wednesday evening that such an EU-wide plan was being considered. He said that one of the ideas being considered was that of making money available to fund cross-border projects, such as infrastructure improvements to the power grid or broadband networks. Glos said that EU member-states were to make funds equivalent to 1 percent of their GDP available. For Germany, that would mean a sum of €25 billion.

The European Commission wants to approve the plan on Nov. 26. The European Council, comprised of leaders of the EU's 27 member states, would then examine the package on Dec. 10.

The size of the package under consideration seems to indicate that the European Union sees the economic situation in the bloc in a much more negative light than does the German government. The Commission's plan would counteract the risk that stimulus packages in individual EU countries could prove ineffectual. Given the inter-linked nature of the European economy, a tax cut in Germany aimed at improving consumption may not necessarily benefit German companies. Shoppers could just as easily use their newfound spending power on imported products. But were the EU as a whole to take steps, the chances of a noticeable economic improvement would be greater.

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