(Adds Merkel quotes, EU and auto industry reaction, details)
By Noah Barkin and Madeline Chambers
BERLIN Jan 13 Germany unveiled a new 50 billion
euro ($66 billion) stimulus package on Tuesday to shield its
economy from the worst recession since World War Two and silence
critics who have accused it of doing too little to boost growth.
Chancellor Angela Merkel's "grand coalition" of
conservatives and Social Democrats (SPD) agreed to billions of
euros in new investments in infrastructure, modest tax cuts and
state guarantees for struggling German firms.
Economists welcomed the package but said it was unlikely to
have more than a marginal effect on Europe's largest economy,
which fell into recession last year and is expected to contract
by 2 percent or more in 2009, its worst post-war performance.
"A government growth programme like this, combined with
measures taken in neighbouring countries, cannot prevent
recession but can limit its severity. That is the goal," German
Finance Minister Peer Steinbrueck told reporters.
The performance of the German economy and success of the
stimulus package will be crucial to Merkel's re-election hopes
in September's federal vote.
Merkel's government pushed through a package valued at 31
billion euros late last year, but new government spending
accounted for only about a third of the total, opening Berlin up
to criticism from other European countries.
French President Nicolas Sarkozy last month accused Berlin
of "thinking" while Paris was "working".
At first, Merkel denied there was any need to do more, a
stance that earned her the nickname "Madame No". But she changed
tack last month and entered talks with her coalition partners on
a new package.
"The reality is that the world has changed, it has changed
dramatically over the past months," Merkel said on Tuesday when
asked about her government's reversals.
Her Foreign Minister Frank-Walter Steinmeier, an SPD leader
who will challenge Merkel in September's election, said: "When I
look around Europe I can't see that anyone else is doing more or
taking better steps than we are."
Central to the new package, which is worth a total of 49.245
billion euros over two years, is about 18 billion euros in new
investments in infrastructure and education which the government
hopes will save jobs.
The package also envisages 1.5 billion euros in aid for the
auto industry and a fund of 100 billion euros to provide credit
guarantees to struggling businesses.
Germany's VDA auto association welcomed the stimulus plan,
saying it would give a boost to domestic carmakers like Daimler
(DAIGn.DE) and BMW (BMWG.DE), which have seen sales plunge.
The coalition partners agreed to tax relief totalling 2.9
billion euros in 2009 and 6.0 billion from 2010. The entry level
tax rate is to go down slightly, tax-free thresholds will be
raised and changes will be made to tax brackets.
Finance Minister Steinbrueck, who has led a drive by
Merkel's coalition to consolidate the German budget over the
past three years, said the new spending would vault Germany back
above European Union deficit limits next year.
Nevertheless, the European Commission welcomed the plan,
saying Germany had "room for manoeuvre" to adopt further
measures to revive the economy.
Economists, however, expressed concern that some of the
measures would not take effect until mid-year -- too late to
ward off the worst of the downturn.
The German economy has relied heavily on exports in recent
years. Domestic stimulus steps will have little affect on
foreign demand for German goods.
"Germany's export-led economy is expected to feel the impact
of the deterioration in the international economic environment
quite strongly," ratings agency Standard & Poor's said in a note