Germany's lower house of parliament on Friday approved a record 50-billion-euro (65-billion-dollar) stimulus package, as the country faced its worst recession in decades. The measure, the second of its kind in three months, sailed through the Bundestag, where Angela Merkel's coalition of conservatives and Social Democrats enjoy a comfortable majority.
But it could run into trouble in the upper house, or Bundesrat, next week where the government does not have a majority and opposition legislators have threatened to block the bill. Opposition Free Democrat (FDP) leader Guido Westerwelle called the package disappointing and ineffective and said it would saddle the nation with huge debts.
Experts believe new borrowing will have to be raised to around 50 billion euros to finance the stimulus, which covers tax cuts and 17.3 billion dollars of public investment in infrastructure projects.
Finance Minister Peer Steinbrueck said the government saw no alternative to increased borrowing in view "of this historic, almost unique situation." The government has pledged to cut net borrowing by 2020 as part of a deal to win support for the new measures, which were approved by the cabinet at the end of last month.
The biggest of its kind since the end of World War II, the package includes modest cuts to income tax aimed at encouraging people to spend. Other provisions see increased family benefits and reductions in contributions to health and unemployment insurance.
The package would also fund investments in roads, schools, hospitals, railways and infrastructure projects which could take time to materialise, but which are likely to have long-term positive effects. Another incentive aimed at helping the country's struggling automobile industry offers 2,500 euros to motorists willing to scrap their old car and buy a new one.
The measures follow a 31-billion-euro stimulus in November, which analysts said was not enough to cushion Europe's largest economy from what looks like being its deepest recession in decades.
Figures released Friday showed the German economy shrank 2.1 per cent in the final quarter of 2008 compared with the third quarter, the largest loss for any quarter since German unification in 1990. Unemployment rose for the second month in a row in January. Meanwhile, industrial production is down and exports dropped for two consecutive months in November and December. The stimulus package is due to be debated on February 20 in the upper house, which is made up of representatives from Germany's 16 federal states and where minority parties have more clout.