Merkel's government at odds on new stimulus package

The parties in German Chancellor Angela Merkel's government clashed on Sunday over new measures to shield Europe's largest economy from what threatens to be its deepest recession since World War Two.
Before a meeting of German coalition leaders on Monday to agree the outlines of a second stimulus package, deep divisions were evident over whether to pursue near-term tax cuts in an effort to boost growth - a step Merkel previously ruled out.
Her government was one of the first in Europe to agree measures to protect the economy from the sharp downturn, but the package it agreed in November and says is worth 31 billion euros ($43.04 billion) has been widely criticised as too modest.
Bowing to pressure from conservative allies at home and partners in Europe, Merkel has now acknowledged the need for a new package, but faces the daunting challenge of uniting her left-right "grand coalition" around a common approach. Her conservative allies, the Christian Social Union (CSU), have vowed to reject any package that does not include tax cuts.
"The position of the CSU is that we cannot envision a growth package that does not include tax relief," Horst Seehofer, head of the Bavarian party, told the Sueddeutsche Zeitung daily. The centre-left Social Democrats (SPD), however, have vowed not to accept any tax cuts and instead want measures that would cut the fees German workers must pay each month for their pensions, health and unemployment insurance.
"We are heading into the negotiations with a clear position: the SPD says no to tax cuts," Andrea Nahles, a deputy leader of the SPD, told the Bild am Sonntag newspaper.
Merkel, the leader of Germany's Christian Democrats (CDU), had hoped to run for re-election with a promise of tax cuts after the next federal vote in September. But she now looks likely to agree to tax relief sooner to appease her CSU allies and avoid the impression she is politicising her response to the economic crisis.
She is due to meet CSU leader Seehofer on Sunday evening in the Chancellery to try to agree a common position on the stimulus package before reconvening on Monday afternoon to hammer out an agreement with the SPD. Government sources have told Reuters the second package, which is expected to include new spending on schools and infrastructure, will total about 25 billion euros.
The German economy officially entered recession in the third quarter of last year and leading economic institutes have forecast that it will contract by 2 percent or more this year - easily the worst annual performance in the post-war era.