GERMANY IS close to announcing a second fiscal stimulus worth up to €50 billion, almost double the amount expected just a week ago, senior officials said yesterday in a sign of the country’s increasing concerns about the severity of the downturn.

The move comes as Barack Obama started pushing his US economic stimulus plan on Capitol Hill yesterday, including about $300 billion (€220 billion) of tax cuts that could soften Republican resistance. Aides to the president-elect said the package would include tax relief for struggling middle-class workers and incentives for businesses to create jobs.

Details of the larger-than-expected German package emerged as leaders of chancellor Angela Merkel’s coalition met in Berlin to hammer out an agreement. Volker Kauder, parliamentary leader of Dr Merkel’s Christian Democratic Union (CDU), said the measures – a combination of infrastructure investment, modest tax cuts, job-supporting measures and help for business – would stretch over 2009 and 2010 and cost up to €25 billion a year.

Although Germany has been criticised by its European partners for acting too slowly to counter the economic slowdown, a fiscal boost on this scale would bring its growth-boosting measures so far to about 1.5 per cent of gross domestic product, the largest such package in Europe.

The package would add to the fiscal boost enacted by the government last November, which totalled just over €12 billion over two years. Separately, the government agreed another €20 billion in growth-boosting measures before the outbreak of the financial crisis in September.

Talks on the second package have put left-right grand coalition partners on a collision course, just nine months ahead of a general election. The Social Democrats, who control the finance ministry, called yesterday for a wealth tax on high earners, tax relief for families and a €10 billion “German fund” to finance community infrastructure programmes.

“We don’t just want to present the rich with a tax gift,” said party leader Franz Müntefering.

But widespread tax cuts are now firmly on the agenda after the CDU agreed yesterday to a demand from their Bavarian allies, the Christian Social Union.

Dr Merkel was determined to keep the promise of widespread tax reform for her election programme before September’s poll. – (Financial Times service)