Germany's CDU adopts plan for new stimulus package

German Chancellor Angela Merkel's Christian Democrats (CDU) yesterday adopted a second stimulus package the party hopes will shore up Europe's biggest economy and help its campaign to get re-elected this year.

The 10-point plan, agreed in the central city of Erfurt, follows an earlier government package launched in November which was attacked by many at home and abroad as too modest.

Merkel's conservatives and the Social Democrats (SPD), traditional rivals who have ruled in coalition since 2005, said the first programme was worth €31 billion.

Critics complained this figure was massaged and included sums relating to measures previously passed.

Coalition leaders have said stimulus plans in the form of investment, tax cuts and other economic support for this year and next could be worth up to €50 billion in total.

How much the final programme is worth should become clear after a meeting tomorrow when the CDU, its Bavarian sister party, the Christian Social Union, and the SPD are expected to agree on a package.

Merkel is seeking re-election in September and heads into the campaign with the economy in recession and the labour market entering a downturn for the first time since she took office.

The CDU measures include fiscal stimulus and a credit fund for struggling companies. Parliamentary sources say the fund should offer guarantees totalling around €100 billion.

The CDU proposals do not advocate the state taking stakes in firms, but they do not expressly rule it out either.

Roland Koch, state premier of Hesse and deputy CDU leader, said in Erfurt the party was prepared to accept the state taking stakes in companies in exceptional circumstances.

"I think the state won't take stakes as a rule," he added.

The plans foresee eliminating so-called "cold progression", a process in which taxpayers are shifted into higher income tax brackets even when real incomes have not grown, and raising the tax-free salary allowance to €8,000 from €7,664.