UPDATE 2-German cabinet backs 50 bln euro growth plan

Wed, Nov 5 2008, 16:17 GMT
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By Gernot Heller and Matthias Sobolewski

BERLIN, Nov 5 (Reuters) - Germany's cabinet on Wednesday agreed a package of measures aimed at giving Europe's biggest economy a 50 billion euro ($64.22 billion) boost and help it withstand the effects of the global financial crisis.

The plan includes tax breaks, spending on infrastructure projects and greater credit provision for small business, all designed to help ordinary workers and save jobs.

"With this package we want to strengthen the endurance of the economy. We know next year won't be easy and we want to have a range of long-term, sensible steps," Economy Minister Michael Glos told reporters.

The 15-point plan will generate investment and contracts to worth 50 billion euros in 2009 and 2010, said the document passed by the cabinet. It will also protect jobs, said the plans drawn up by the finance and economy ministries.

Germany is on the brink of recession and the government is worried that the global financial turmoil will cause a rise in unemployment before next September's federal election.

Last month, the government launched a 500 billion euro bank rescue package to restore confidence in the financial system but Wednesday's initiative is aimed at consumers and family-run firms which form the backbone of the German economy.

Measures include the provision of extra funds for small and medium-sized businesses to borrow from state-owned development bank Kreditanstalt fuer Wiederaufbau (KfW), tax breaks on new cars and funding for infrastructure projects and building work.

The head of the Munich-based Ifo economic institute welcomed the package but questioned its timing.

"The programme is good. I have no fundamental misgivings. (But) I would wait a bit with the package," Ifo President Hans-Werner Sinn told Reuters, adding the government would be left with few policy options if the situation deteriorated.

The government will fund the plan at least partly through new debt which will hit Germany's budget consolidation targets.

Finance Ministry documents showed the package would result in an added burden of 10.9 billion euros on the federal budget between 2009 and 2012. The cost to the public sector budget would total 23 billion euros in the same time period, it said.

The finance and economy ministries said the new economic conditions meant it was no longer realistic to meet their goal of achieving a federal budget with no new borrowing in 2011.

"This does not mean we are giving up on the goal, indeed the government will do everything to achieve a federal budget with no new borrowing as soon as possible," said the paper.

For a factbox on the plan, click on

(Writing by Madeline Chambers; editing by Tony Austin and Victoria Main) ($1=.7786 Euro) Keywords: GERMANY ECONOMY/STIMULUS

(madeline.chambers@reuters.com; +49 30 2888 5230; Reuters Messaging: ann.chambers.reuters.net@reuters.com)

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