After weeks of internal bickering, Merkel's left-right grand coalition government agreed to a stimulus package worth some $66 billion over two years. It includes measures to support local businesses, stabilize the credit and banking sector, strengthen consumption and avoid job losses. It also earmarks money for infrastructure investments (schools, highways, Internet connections) and cuts in taxes and health insurance levies.
According to Merkel, the package underscores her government's "determination to overcome" and should help Germany "emerge stronger" from the current financial crisis.
Flanked by Foreign Minister Frank-Walter Steinmeier and the head of Bavaria's conservatives, Horst Seehofer, Merkel said Tuesday at a news conference in Berlin that the current crisis "is different from all other dents we have had so far in Germany."
After years of economic growth and rising employment figures, the export-heavy German economy in December for the first time saw substantial job losses. Economic institutes predict Germany will enter the worst recession since the end of World War II, and they seem to be right: Recent glimpses into the December and early January order books of German companies, Merkel said, reveal "dramatic" developments that make concerted action necessary. "Never have I experienced globalization in such a direct and close manner," she added.
With the package, which also includes tax cuts, Berlin gave an answer to critics across Europe who accused Merkel of not acting boldly enough in the face of the crisis.
French President Nicolas Sarkozy said last month his government was working to shield Europe's economies, while Berlin was merely thinking what to do next.
Once hailed for her hands-on approach when it comes to diplomatic disputes, Merkel was suddenly labeled "Ms. No" by the European press when she only reluctantly backed an EU-wide stimulus plan. And at home, an initial $30 billion stimulus package Berlin passed last month was derided as too cautious.
Preaching fiscal sanity, Merkel in the past has denounced what she called "frantic attempts" to outbid each other with aid packages.
And she received backing from Steinmeier, who will run for chancellor against her later this year.
"When I look around Europe, I can't see that anyone else is doing more or taking better steps than we are," Steinmeier said, adding that larger aid packages could just as well contain nonsense measures.
Berlin hopes the measures it drafted actually do help stabilize the German economy. Merkel and Steinmeier are optimistic: They said Tuesday that Germany, with its stable real estate market, its reasonable labor union contracts and a large number of innovative companies, was in a much better state than most other economies across Europe.
But some sectors do spark worries: The German car industry is suffering from the lowest domestic, European and U.S. sales in nearly two decades. Tuesday's aid package will try to reverse that trend by handing a $3,300 voucher to each German who buys a low-emission car and ditches one that's at least 10 years old.
Merkel said she might have to hold "very serious talks" with U.S. President-elect Barack Obama once he takes office, to see whether his plans to help the ailing U.S. car industry damage German automakers.
Merkel said she is worried that Germany's industry will suffer from "competitive disadvantages" if Obama keeps the American car industry alive with "billions in taxpayers' money."