Page last updated at 13:11 GMT, Thursday, 11 December 2008

Brown shrugs off German attacks

Gordon Brown
Ministers say other countries support Gordon Brown's policy

Gordon Brown has shrugged off criticism from Germany's finance minister of his economic policies, saying the remarks were influenced by internal politics.

Peer Steinbruck criticised the decision to cut VAT and raise national debt levels, saying the UK's response to the crisis was "crass" and "breathtaking".

Mr Brown said Germany had intervened to support its banks and to inject money into the economy as Labour had done.

But the Tories said the German comments were a "stark warning" to Labour.

In step

The Lib Dems said Germany's leaders were "fed up being lectured" by Mr Brown over how to run their economy.

Mr Steinbruck's comments, in an interview with Newsweek magazine, represented an unusual breach of standard diplomacy.

They also exposed apparent divisions in Europe over its response to the global economic downturn as EU leaders prepare to gather in Brussels on Thursday for a summit to discuss the issue.

The important thing is that almost every country around the world is doing what we have been doing
Gordon Brown

No 10 appears keen to play down any disagreement between the two countries and to highlight the fact Chancellor Angela Merkel is sympathetic to the British approach.

Mr Steinbruck's Social Democratic Party shares power with Ms Merkel's rival Christian Democrats and tensions in the coalition have resurfaced ahead of next year's elections.

Mr Brown defended the government's decision to cut taxes and raise borrowing to support the economy through a likely recession, telling LBC Radio: "The important thing is that almost every country around the world is doing what we have been doing."

'Crass'

He added: "Actually the German government is investing more. They have just announced a fiscal expansion so that they can invest in public works and helping their banks and doing these sort of things.

"I do not want to get involved in what is clearly internal German politics here, because they have a coalition in Germany with different political parties."

Mr Steinbruck questioned the effectiveness of the UK's decision to cut VAT from 17.5% to 15%, saying "are you really going to buy a DVD player because it now costs 39.10 instead of 39.90?".

He also questioned why Britain was "tossing around billions" and closely following the high public spending model put forward by 20th Century economist John Maynard Keynes.

"The switch from decades of supply-side politics all the way to a crass Keynesianism is breathtaking," he said.

'No clothes'

Shadow chancellor George Osborne said the criticism undermined the government's claims that other countries were following the UK's lead over the economy and "vindicated" Tory warnings over the effectiveness of the VAT cut.

"It is a kind of moment when the emperor is discovered to have no clothes," he told the BBC.

"Gordon Brown has told everyone that the world agrees with him. Today the world answered back."

For the Lib Dems, Vince Cable said he agreed with Mr Steinbruck's criticism of the UK's VAT cut, saying it was not a "sensible way to inject activity into the economy".

German Finance Minister Peer Steinbruck
Mr Steinbruck did not mince his words

While he accepted Germany was "out of line" with most European countries over the size of the fiscal stimulus needed, Mr Cable said they were "making a case for greater financial discipline".

Other Cabinet ministers have defended Labour's policy, arguing it has widespread support across the world.

"We need to save the world from a deeper downturn and we will only do that by concerted international action together," Ed Balls said.

"Britain, and Gordon Brown, is leading that action."

Mr Balls maintained that the Tories were "isolated" over the need for fiscal support for the economy, saying they were "out of step with the British people and the rest of the world".

Home Secretary Jacqui Smith said the government was doing what was needed to support the economy, stressing that she "disagreed" with Mr Steinbruck's analysis.

Rescue package

The chancellor announced in last month's pre-Budget report that the government would inject an extra 20bn into the UK economy in a bid to get it moving again.

At least 15bn of this total will come from increased government borrowing, which is expected to take the UK's total annual public sector deficit 118bn next year.

FROM THE TODAY PROGRAMME

While Mr Steinbruck has accused the UK of over-spending on the economic recovery, the German government has put 480bn euros (370.4bn; $645bn) into a rescue package for its banks.

Most other European governments have also increased public spending to try to ease the impact of the economic downturn.

France recently announced plans to spend 26bn euros, and the European Commission wants to spend 200bn euros across the EU.

Ahead of the Brussels summit, French President Nicolas Sarkozy said countries must show "vision and a spirit of compromise" to navigate their way through the downturn.

"We shall be required to take a series of decisions with highly significant implications for the future of Europe," he wrote in a letter to other European leaders.

"I am determined that the European Council lives up to its responsibility and to citizens' expectations."

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