Merkel eyes new growth plan targeting schools, roads

The German government will pursue a new package of economic stimulus measures next year that will focus on infrastructure projects such as schools and roads, German Chancellor Angela Merkel said.

Ms Merkel had signalled previously that her government was likely to pursue new steps, but her comments to the Neue Presse newspaper were the first in which she discussed what the package could look like and signalled that it will definitely happen.

Berlin has already pushed through measures it says are worth about €31 billion, but the chancellor has faced pressure at home and abroad to do more to boost Europe's largest economy as it battles recession.

"It's important that the federal government, states and local communities act in a coordinated way in the preparation of the new economic stimulus package in the coming weeks," Ms Merkel said.

"One focus is on investments in infrastructure, such as schools, roads and the extension of broadband networks," she added. "It's very dear to me that the development on the labour market is at the centre of our efforts."

The conservative Ms Merkel is under pressure from officials in her own Christian Democrats (CDU) and their Christian Social Union (CSU) sister party to cut taxes, but the chancellor has ruled this out until after the next election in September.

She told the Neue Presse the government had to maintain a close watch on the budget despite the global financial crisis.

"A balanced budget remains our target because the demographic changes in Germany will increasingly have an effect from the middle of the coming decade. We must not overburden the younger ones," she said.

Ms Merkel's grand coalition government of conservatives and Social Democrats (SPD) had hoped to balance the federal budget by 2011 but government officials have acknowledged it will be difficult to reach that goal.

Germany, the world's biggest exporter of goods last year, slipped into recession over the summer, contracting in the second and third quarters.

A deputy economy minister said this week the German economy may shrink by more than three per cent in next year, and leading analysts have predicted a contraction of up to four per cent - which would be more than four times worse than the previous post-war nadir.