Page last updated at 13:04 GMT, Tuesday, 13 January 2009

Germany agrees 50bn euro stimulus

German shoppers
Germans are reluctant to spend due to the tighter economy

German Chancellor Angela Merkel has unveiled an economic stimulus package worth about 50bn euros ($67bn; 45bn) to kick-start Europe's largest economy.

The measures include investments in railways, roads and schools, as well as a number of tax relief initiatives.

It is aimed at helping the country during what some fear could be its worst recession since World War II.

An earlier 23bn-euro plan to stimulate the economy, passed last month, was derided for being too cautious.

"We will do everything possible to make sure Germany not only gets through this crisis but emerges stronger," Ms Merkel said.

Tax cuts

The agreement follows squabbles between the Social Democrats and Christian Democrats over how to shore up the German economy and prevent job losses.

"All in all, it is a package that will help get us through the financial crisis and secure jobs," said Christian Democrat parliamentary president Volker Kauder.

The new two-year stimulus package will include investment measures worth about 18bn euros for infrastructure projects.

The package includes:

  • A 100bn-euro loan guarantee programme for firms struggling through the ongoing credit crunch
  • Tax cuts and breaks, including reductions in state health care contributions and bonuses of 100 euros per child
  • A 2,500-euro payment for scrapping a car older than nine years and buying a new vehicle.

But, says the BBC's Steve Rosenberg in Berlin, this package alone will not solve Germany's biggest problem at the moment: its falling exports.

Because of the global economic downturn, there is less demand abroad for German goods, such as cars and machine tools.

Germany is heavily reliant on exports, which saw their largest fall in November since reunification in 1990.

Last year, it unveiled a bail-out for businesses worth up to 500bn euros, but its use has been limited because of strict conditions attached to taking the money.

Meanwhile, figures released on Tuesday morning showed that German wholesale prices fell 3% in December from the previous month, and were down 3.3% on a year-on-year basis.

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