Atlantic Council

First it was €40 billion.  Then it was €25 billion.  Now it may be as high as €50 ($68.1) billion.  The changes to Germany's proposed economic stimulus package rival those of TARP.  The plan, which will reportedly focus on schools and public works, remains stalled by conflicting domestic political debates over tax cuts within Merkel's governing coalition. 

Russia is threatening to cut off gas flows to Ukraine on January 1 if Kyiv does not fork over $2 billion in late payments and finalize new gas prices for 2009.  However, a stop in gas supplies now will be different than it was in January 2006; this time around Ukraine has amassed enough reserves to get it through the winter (as has Germany). 

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. 

Moscow and Kiev are once again on a collision course over gas supplies. WaPo: Russia and Ukraine appear to be heading for a new collision over natural gas that could disrupt supplies to Europe this winter, with Russia threatening to stop selling the fuel to Ukraine on Jan. 1 if it does not repay more than $2 billion in debt.

Following weeks of disagreement with Brussels, and France and the UK in particular, the German government has agreed to a second stimulus package of nearly €40 ($55.5) billion.  Merkel faced a strong backlash throughout Europe in recent weeks from critics who felt the government was not responding adequately to Germany's economic downturn.  Her refusal to spend more on the crisis has also cost her domestic popularity. 

The recent pressure on Angela Merkel to enact further stimulus measures for Germany's economy continues, the WSJ reports:

German Chancellor Angela Merkel is facing mounting pressure to boost her stimulus plans for Europe's largest economy and reverse a thrifty strategy that has her out of step with other nations.

She will likely be challenged on the point when European Union leaders gather for a summit Thursday.  On Monday, UK Prime Minister Gordon Brown and French President Nicolas Sarkozy met to discuss policies to revive the European economy – without inviting the German chancellor.  Both men have announced ambitious fiscal, regulatory and other initiatives in response to the financial crisis, while Ms. Merkel's fiscal boost for Germany's €2.5 ($3.2) trillion economy includes only €4 ($5.2) billion of fresh money next year.

All sides played down talk of a rift with Berlin, but in Germany Ms. Merkel's absence was seen as a symptom of her foot-dragging role in Europe's economic deliberations.  Meanwhile on Tuesday, Germany's constitutional court reinstated tax breaks for commuters that Ms. Merkel's government cut in 2007 – forcing her to put a brave face on the legal defeat, calling it a boost to the economy although she has rejected major tax cuts as a stimulus.

The recession in Germany has turned into a major threat to Merkel's political future.  Analysts suggest Merkel's insistence on fiscal discipline will cost her popularity as the effects of the economic downturn set in.

Related Posts:

• UK, France Snub Germany at Financial Meeting
• Germany at Odds with UK, France Over EU Stimulus Plan

On Monday, Gordon Brown and Nicolas Sarkozy urged coordinated European fiscal stimulus measures to curb a possible recession.  The call came after a summit in London to which Angela Merkel was not invited, another example of the increasing disagreement between the two countries and Germany over an appropriate response to the financial crisis.  The FT:

Mr. Brown and Mr. Sarkozy pointed to a massive public works plan by Barack Obama, U.S. president-elect, as further evidence that they are right to argue for a large stimulus package in Europe.  But their joint participation at a “Global Europe” summit in London was seen as a snub to Angela Merkel, German chancellor, who was not invited and who has been accused of failing to act decisively to inject demand into her own economy.  Ms. Merkel’s ministers have variously suggested that the Anglo-French enthusiasm for deficit spending was akin to lemmings jumping off a cliff, or that fiscal stimulus measures elsewhere might serve to bolster Germany’s export economy.

Mr. Brown and Mr. Sarkozy both revealed that they had spoken to Ms Merkel over the weekend to reassure her that they were not ganging up on Germany just days before a European Union summit discusses the economic crisis.  José Manuel Barroso, European Commission president, also attended the London event and revealed that he too had spoken to Ms. Merkel on Monday, explaining that any EU recovery package would be fatally flawed if Germany were not on board.

However, without Germany's help, the chances of an effective rescue package seem quite diminished.

Related Posts:

• Germany at Odds with UK, France Over EU Stimulus Plan
• EU Economy Update
• France and Germany Clash over EU Economic Rescue Plans
• More Fiscal Stimulus Planned for Europe

The British papers are having a field day with a German parliamentary report's finding that Bundeswehr forces in Afghanistan are fat and drunk. 

Ahead of a two-day meeting of EU finance ministers in Brussels that starts Tuesday, Germany remains reluctant to cut taxes or significantly boost spending.  Merkel's hesitance to further contribute to EU rescue packages is increasingly putting her at odds with the UK, who recently reduced VAT, and France, who is expected to unveil new economic stimulus measures in the next few weeks.  The FT:

Differences were widening on Monday over a European Commission €200 ($252.7) billion economic recovery plan, with France and the UK eager to see a big, coordinated stimulus package but Germany more critical of such reflationary measures.  A paper by the French presidency of the European Union, to be discussed at Tuesday’s EU finance ministers’ meeting in Brussels, was similar in content and tone to the Commission’s plan, with some passages apparently lifted directly from the proposal published last week, EU officials said.

In contrast, Germany remained skeptical, with Chancellor Angela Merkel yesterday ruling out significant tax cuts and Peer Steinbrück, finance minister, at the weekend likening countries that are ready to adopt large-scale deficit spending programs to "lemmings" hurrying down the path to mass suicide.  The Brussels meeting will debate how EU countries haul their economies out of recession, ahead of a summit next week of EU heads of state and government that is set to approve the Commission proposals, if in modified form.

[...]

A more robust approach is backed by France, with President Nicolas Sarkozy remarking pointedly last week after talks with Ms. Merkel that France was "working" on a stimulus plan while Germany was still "thinking" about what to do.  France, the UK, and others contend that an extra German stimulus would help not merely the German economy but the EU as a whole.

The WSJ similarly reports:

While policy makers in the U.S. and elsewhere in Europe are drawing up ever-larger fiscal stimulus proposals, Ms. Merkel told her center-right Christian Democratic Union's annual conference that she would continue to strive for a balanced budget.

[...]

Germany's government has been vocally skeptical about whether debt-fueled spending plans will work. But many of Ms. Merkel's conservative colleagues, as well as German business groups, economists and international organizations, are complaining that Germany is doing too little to lift its economy, which is contracting fast amid a slump in global exports.

Neighboring European countries such as France also are disappointed that Germany isn't taking the lead to revive growth through tax-and-spending measures.  Instead, Ms. Merkel lectured her party on financial discipline on Monday, praising the famously thrifty inhabitants of Swabia, the region around Stuttgart where the Christian Democrats' conference is being held.

The root of the global financial and economic crisis is known to every Swabian housewife, Ms. Merkel said: "You can't keep on living beyond your means."  A lack of thrift in advanced economies caused the crisis and can't be its cure, she said.

Merkel said the country might enact further fiscal measures in early 2009 if the economy remains unstable.  However, many economists are already criticizing the government for not taking seriously enough the major downturn Germany faces.

Related Posts:

• EU Economy Update
• France and Germany Clash over EU Economic Rescue Plans
• More Fiscal Stimulus Planned for Europe

General Hans-Christoph Ammon, the head of the German army's elite special commando unit KSK, called Germany's contributions to the NATO mission in Afghanistan a "miserable failure" while speaking to the German press agency DPA.  IHT:

Breaking with a military tradition of keeping silent about policy, a top German general has branded his country's efforts in Afghanistan a failure, singling out its poor record in training the Afghan police and allocating development aid.

Germany was responsible for training the Afghan police, but the German Interior Ministry, led by the conservative Wolfgang Schäuble, has come under repeated criticism from the United States and other NATO allies for providing too few experts and inappropriate training.

[...]

The government had provided a mere €12 ($15.2) million for training the Afghan Army and police while the United States has already given more than $1 billion, he said.  "At that rate, it would take 82 years to have a properly trained police force," he said.  More damaging for Germany's reputation, Ammon said, was that its police-training mission was considered such a 'disaster' that the United States and EU had taken over responsibility.

Furthermore, the rare nature of Ammon's comments seems to have given gravity to his message:

The Defense Ministry said Ammon was expressing his personal views. Even so, because such views are rare, security experts said they showed the level of frustration building among senior military officers over German reluctance to provide adequate financing for Afghan mission or even explain to the public why Germany has 4,500 soldiers there.

Neither Chancellor Angela Merkel nor her conservative defense minister, Franz-Josef Jung, have been willing to debate the issue publicly.  For the first time since German soldiers were sent to Afghanistan six years ago, Jung referred in November to the "Gefallene," or fallen soldiers, who had died there.

Merkel is facing increasing pressure both from her Christian Democratic Union party as well as from outside critics to more fully address the Afghanistan issue and Germany's role there.  This pressure will likely grow next year, as Obama is expected to push Europe for greater troop contributions to Afghanistan upon taking office.