Angela Merkel, the German chancellor, has summoned the country’s top bankers and several economists for consultations in Berlin on Sunday as pressure grows on the government to adopt a second batch of measures to support Europe’s largest economy.
The meeting comes against a backdrop of rapidly deteriorating economic news. Statistics released on Monday showed industrial production had dropped by 2.1 per cent in October after a 3.3 per cent, month-on-month fall in September.
Goldman Sachs said the figures suggested that Germany, the Europe’s industrial powerhouse, was facing its steepest-ever quarterly drop in industrial production. The largest exporter of goods in the world is expected to face one of its most severe recessions next year.
Nonetheless, Berlin officials played down expectations on Monday that next weekend’s meeting at the chancellery would yield policy decisions. The exchange of views, they said, was aimed at preparing a meeting of coalition leaders on January 5, which will pave the way for a fresh stimulus package.
The fact that Peer Steinbrück, finance minister, Michael Glos, economics minister, Frank-Walter Steinmeier, foreign minister and vice-chancellor, and Olaf Scholz, labour minister, have been asked to attend suggests that Ms Merkel is mainly keen to end a debate in the coalition about future policy steps.
Coalition politicians have floated numerous suggestions in the past two weeks about what the government’s second fiscal package – following the €12bn, two-year programme adopted by parliament last Friday – could look like.
Left-leaning members of the Social Democratic party, junior partner in Ms Merkel’s ruling alliance, are pushing for “consumption vouchers” – or cash gifts – worth €500 per person in the run-up to the Christmas holiday.
Ms Merkel has dismissed the €40bn idea, saying it would have only a temporary impact on consumption. She is also sceptical about calls for tax cuts from her own Christian Democratic Union.
A possible compromise, floated by Mr Glos on Monday, could be a budget-financed cut in health insurance contributions. While only half of German households pay income tax, nearly the entire working population is subject to social security contributions.
Sunday’s meeting is also expected to discuss the government’s €500bn rescue package for the banks, which has so far failed to encourage a resumption of interbank lending.
The Bundesbank, which manages the bank rescue fund together with the finance ministry, said on Monday it was considering whether to set up a central clearing house for interbank lending as one possible modification to the scheme. The finance ministry did not return calls for comment.
The government is currently less concerned about the economic slowdown than about banks’ reluctance to lend to each other and to larger companies, especially to fund long-term investments.
It fears that a large fiscal stimulus would fail to prop up consumption and investment as long as the financial system is not fulfilling its role. In addition, Berlin is keen to keep its fiscal powder dry so that it can move more aggressively once unemployment begins to rise next year.
Finally, Ms Merkel wants to be able to react once Barack Obama, the US president-elect, has announced his own growth-boosting plan after taking office on January 20. “If there is additional help for US carmakers, for example,” said one German official, “we will have to adopt our own measures.”