German Chancellor Angela Merkel and French President Nicolas Sarkozy failed this week to agree on a European stimulus package. Even plans for a modest cut in the Europe-wide value-added tax to boost consumer spending were blocked by Merkel, who said she did not want to act "in haste."

Sarkozy's frustration was palpable in their joint news conference. Asked if there were any new measures being developed to tackle the recession, the French president snapped: "France is working on it. Germany is thinking about it."

Germany, the world's third-largest economy after the United States and Japan, with a GDP slightly higher than China's, is the motor of the European economy. And while its economic growth has stalled, it built up a $100 billion trade surplus in the first half of this year, and its budget is close to being balanced.

Germany has far more room for expansionist policies than the United States or Japan or its European partners. But Merkel, despite doubts with her ruling coalition, is refusing to make them, for what seem to be as much political and economic reasons with elections just 10 months away.

Although she announced a $40 billion stimulus package this month, it was immediately denounced by economists who said it included measures already budgeted and under way. The real new money, they claimed, represented less than $18 billion spread over the next two years, a pittance in a $3 trillion economy.

This bodes ill for the stimulus plan being prepared by the European Commission, the executive arm of the European Union, which is expected to be unveiled Wednesday with a headline figure of $160 billion. The plan includes tax cuts, more and faster EU funding for infrastructure and new incentives for green technologies in the construction and auto sectors. The Commission also plans to let EU governments breach the tight rules on budget deficits for the next two years, citing "extraordinary circumstances."

But the Commission has little executive authority, and the package would need to be approved by the 27 heads of government. Germany's stance now makes that unlikely.

Put this into perspective. The EU has a slightly larger economy than that of the United States, and between them these two giants command more than half of the global economy. For one of these two behemoths to duck the chance of a coordinated worldwide response to the greatest economic threat since the 1930s is worse than irresponsible.

And Germany is a leading victim of the crisis. Its economy shrank in the last two quarters and is expected to contract again throughout next year in what looks to be the country's worst economic performance since the end of World War II. Its giant industries are limping, with the huge chemical conglomerate BASF temporarily closing 80 plants worldwide, due to "a massive decline in demand," and cutting production at 100 more plants.

BMW, worried at how to finance expected losses on the $25 billion in leased vehicles on its books, has already cut 8,000 jobs this year. Mercedes is cutting production by 150,000 vehicles next year, after its company-owned dealers lost more than $200 million in 2008. The dealers got $60 million from Mercedes last year, and now they want more.

The German car industry employs 1.5 million people, and its $240 billion foreign sales amount to 20 percent of the country's exports. But even though the EU provided $25 billion in R&D funds for alternative energy technology, the car industry is now asking Berlin for government help, starting with subsidies for people who trade in a 10-year-old car for a new model.

Germany's widely watched Ifo Institute for Economic Research business confidence index has slumped from 108 in January last year to 85 this month, the sixth consecutive monthly fall. A separate survey of 1,800 companies by Cologne's Institute of Business Research found more than a third expected to cut their workforce in the coming year.

By contrast with Germany's low-key response, Britain this week launched a $30 billion stimulus package, cut its VAT tax rate and pumped more than $1 billion into subsidizing more insulation of homes and another $1 billion into lending plans for small businesses. Facing a 1-percent decline in GDP next year and rising unemployment, the British government is opening the floodgates of public spending, raising its level of national debt from just over 40 percent to as much as 60 percent.

In the United States, after the bailout of Citibank, the Federal Reserve announced Tuesday a new $800 billion stimulus to unfreeze the credit and mortgage markets. The Fed will buy up to $600 billion in debt issued or backed by Fannie Mae and Freddie Mac and launch another $200 billion injection for consumer and small-business loans. In a separate move, the Fed will lend up to $200 billion on a non-recourse basis to holders of AAA-rated asset-backed securities backed by "newly and recently originated" loans, such as college loans, car loans and credit cards.

Add in China's $564 billion stimulus package and Japan's $100 billion refinancing for the International Monetary Fund, and it is evident that the world is taking bold and decisive measures. But the Europeans are dithering, thanks largely to Germany, even though its current account surplus rose to $19 billion in September, according to official figures released this month.

Merkel's fear is that the sharp fall in world trade means that German exports, the locomotive of the economy, are set to fall sharply. So she is saving her ammunition for even more trouble next year when the election looms. She also fears that tax cuts or other boosts to consumer spending are likely to suck in more imports, and after massive spending on new roads after German unification, there is limited space for infrastructure investment.

In short, Merkel is looking at this global economic crisis with a purely German and very short-term political perspective. For a country that depends on exports for some 40 percent of its GDP, which means that it depends on healthy world trade and global growth, it is an extraordinarily blinkered approach.

As Joschka Fischer, Germany's respected former foreign minister, put it recently: "Europe's largest economy is giving the impression that it is now acting in a purely national way, no longer in a European way. This is a big concern, because the economic crisis will put the European project, including the euro, at risk."

Share This Article With Planet Earth

del.icio.us	Digg	Reddit
YahooMyWeb	Google	Facebook

Related Links
The Economy

Memory Foam Mattress Review

SPACE MEDIA NETWORK PROMOTIONS Solar Energy Solutions Tempur-Pedic Mattress Comparison ... Newsletters :: SpaceDaily :: SpaceWar :: TerraDaily :: Energy Daily XML Feeds :: Space News :: Earth News :: War News :: Solar Energy News