Merkel Aims to ‘Strengthen Germany’ as Crisis Deepens in 2009

By Brian Parkin

Dec. 14 (Bloomberg) -- Chancellor Angela Merkel said her government was preparing for a deterioration of the economic outlook in 2009 and looking at ways of strengthening Germany to cope with the global financial crisis over the long term.

Merkel, who will host talks in Berlin today of her key ministers with industry leaders and economic experts, said the aim of the meeting is “to work on means of combating any worsening of the crisis.”

The government “will hold very concentrated consultations in the coming weeks on any action to take,” Merkel said in an interview with the Bild am Sonntag newspaper. Today’s discussions are intended “to reach a common assessment of the current situation and the outlook for 2009.”

Merkel faces persistent calls for more action to support Europe’s biggest economy going into 2009, an election year, as the global recession hurts demand for German exports. Paul Krugman, the Nobel Prize-winning economist, joined the critics, saying in an interview with Der Spiegel magazine that Merkel and Finance Minister Peer Steinbrueck are “misjudging the severity” of the crisis and “wasting precious time.”

Krugman’s warning follows economic data suggesting that the downturn may be accelerating in Germany, the world’s biggest exporter, where one in three jobs relies on foreign trade.

The Munich-based Ifo institute forecast on Dec. 11 that the economy will shrink 2.2 percent next year, the second assessment in as many days to predict the worst recession since World War II. The Essen-based RWI institute forecast a contraction of 2 percent on Dec. 10, forcing the government to reiterate its own outlook for next year of 0.2 percent growth.

‘Flashing Red’

“Signals for the German economy are flashing red for 2009,” Ifo said. The Ifo and RWI institutes are both members of a group that advise the government.

Economy Minister Michael Glos today denied as “pure speculation” a Spiegel report that the government already concedes that the economy will contract 2 percent next year as Germany enters a “deep recession.” Glos is scheduled to review the economic outlook on Jan. 15.

Merkel, who meets today with 32 leaders from industry, banking, economics and labor unions, has scheduled a further meeting on Dec. 18 with representatives of Germany’s 16 states, she told Bild am Sonntag. Those talks will focus on public infrastructure projects that are ready to roll out, as well as the coordination of action between the federal government and the states “in these extraordinary times.”

Schools Investment

Foreign Minister and Vice Chancellor Frank-Walter Steinmeier told Bild that renovating schools, better equipping kindergartens and modernizing sports grounds would all be means of securing jobs while “investing in the future.” Steinmeier will lead the Social Democratic Party, part of the governing grand coalition, against Merkel’s Christian Democratic Union at the national election in September 2009.

Lawmakers passed the government’s 32 billion-euro ($43 billion) stimulus package on Dec. 5 in the face of opposition from Merkel’s Bavarian allies in the Christian Social Union, the sister party to Merkel’s CDU. The CSU demanded income-tax cuts on top of the measures on construction investment and tax relief included in the plan.

Forty-eight percent of respondents to a poll by FG Wahlen for ZDF television published Dec. 12 said that the stimulus package doesn’t go far enough. Twenty-six percent said it was sufficient, while 10 percent said it went too far, according to the poll of 1,286 voters conducted Dec. 9-11.

Merkel has set a deadline of a Jan. 5 coalition meeting before announcing any new measures.

“Germany is a strong country,” Merkel told Bild. “I am deeply convinced that we Germans can overcome these challenges.”

To contact the reporter on this story: Brian Parkin in Berlin at bparkin@bloomberg.net.