Germany's tardy stimulus package bound up by red tape

By Brian Rohan - Analysis

BERLIN (Reuters) - Billions of euros in stimulus spending designed to shield Germany from its deepest post-war recession are unlikely to filter through to the real economy until late next year when growth has already picked up.

With big chunks of state aid still tied up by red tape six months after Berlin unveiled the second tranche of its 81 billion euro stimulus package, critics are seeing their worries about the government's initial sluggishness confirmed.

Transparency and effectiveness may be the good intentions behind lengthy application and planning procedures for state aid, but they are resulting in red tape that will make much of the package miss its most effective window.

The delays mean the small and medium-sized businesses forming the backbone of the German economy may continue to suffer well into 2010, dragging the broader economy down with them.

"Municipal investment projects have yet to get off the ground," said Heiko Stiepelmann of the HDB industry association.

He said federal road building was likely the only area that would launch stimulus-related projects in 2009.

"Small- and medium-sized construction firms will feel the pinch this year, and the stimulus has yet to reach them."

The drag from the delayed stimulus risks hitting Europe's largest economy just as it starts to recover. Last week a senior government official said Germany may have exited recession in the second quarter after a record contraction in the first.