German Stimulus Package Smaller Than Previously Announced

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German Stimulus Package Smaller Than Previously Announced

Peter Cassata | December 24, 2008

Germany's fiscal stimulus package will be smaller than earlier announced. Apparently, Spiegel's article from last week touting the availability of €40 ($56) billion in funds was incorrect; the figure is actually closer to €25 ($35) billion. Deutsche Welle:

German papers reported on Wednesday, December 24, that Berlin is planning a package of measures to help the country fight recession worth 25 billion euros ($35 billion), less than the 40 billion euros reported earlier.

The Sueddeutsche Zeitung and the Frankfurter Rundschau have both reported in their Wednesday editions that the 25-billion-euro plan came out of a meeting on Tuesday between Chancellor Angela Merkel's chief of staff and representatives from Germany's 16 federal states.

The volume is less than expected. German newsmagazine Der Spiegel had earlier reported that a package worth up to 40 billion euros could emerge. But according to the Sueddeutsche, Germany is unwilling to spend more due its wish to adhere to strict EU deficit rules.

Berlin's strict adherence to the EU Stability and Growth Pact is behind the package's reduction. The pact limits national deficits to 3 percent of GDP, which in Germany's case is €75 ($105) billion. Since the country already has a €50 ($70) billion deficit due largely to the global financial crisis, only €25 billion more are available for economic stimulus.

Concerns over setting a precedent also entered into the decision to decrease the size of plan, Deutsche Welle reported: "Germany sees itself as a guardian of the EU's Stability and Growth Pact, which puts strict limitations on deficits and debt, and doesn’t want to provide a pretext for countries such as France and Italy to soften the pact’s rules, the [Rhein-Zeitung] newspaper said."

Yet, with an economy in recession and a maxed out budget deficit, Germany may soon find itself breaking the rules it presently seeks to uphold.