Merkel's coalition at odds on stimulus

Angela Merkel's government is confronting a grim outlook.

BERLIN - The parties in German Chancellor Angela Merkel's government clashed yesterday over new measures to shield Europe's largest economy from what threatens to be its deepest recession since World War II.

Before a meeting of German coalition leaders today to agree to 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.

Merkel's government was one of the first in Europe to agree to measures to protect the economy, but an initial package agreed to in November includes only about 12 billion euros, or $16.6 billion, in new spending and has been criticized 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 that is expected to focus on investments in infrastructure and schools and total about 25 billion euros.

But she faces the daunting challenge of uniting her uneasy left-right "grand coalition" behind a common approach.

Her conservative allies, the Christian Social Union, have vowed to reject any package that does not include tax cuts.

Merkel's other coalition partner, the center-left Social Democrats, are firmly against offering tax relief and are instead proposing a tax hike on top earners.

REUTERS