Berlin - German Chancellor Angela Merkel said a new stimulus package approved by her cabinet on Wednesday was the best response to deal with the recession gripping Europe's biggest economy. The 50-billion-euro (66-billion-dollar) rescue plan includes 18 billion euros in public investment, income tax cuts, increased family benefits and incentives for car buyers.
Merkel told parliament that a key element of the package was to save jobs and ensure that Germany emerged from the recession stronger than it was before.
"We should use this crisis as a chance," the chancellor said, warning that Germany faced a difficult year ahead.
The fiscal stimulus comes on the heels of another package worth 35 billion euros that was approved in November, but which was seen as insufficient to pull Germany out of recession.
The chancellor, who faces a general election this September, said a 100-billion-euro programme of credit for industry would help businesses that were unable to obtain long-term finance from banks.
Economists gave a cautious welcome to the plan, but expressed disappointment that the income tax cuts would not come into force until July 1, pending parliamentary approval next month.
The German economy contracted by up to 2 per cent in the final quarter of 2008 and analysts expect it to shrink around the same level this year as export markets crumble.
Unemployment rose for the first time in 33 months in December, with 7.6 per cent of the workforce jobless.
Opposition parties have criticized the stimulus package as too feeble, calling it a patchwork of compromises between Merkel's conservatives and her centre-left Social Democratic coalition partners.
German Finance Minister Peer Steinbrueck said in a newspaper interview that he expected Germany's net public debt to rise above 4 per cent of gross domestic product (GDP) in 2010 as a result of the stimulus plan.
This would place it above the 3 per cent ceiling set by the European Union for membership in the eurozone.
To reassure critics, the coalition parties agreed to change the constitution so that in normal times, future governments cannot increase the debt by more than 0.5 per cent of GDP.
