Germany Faces 'Year Of Bad News' In 2009

Europe's biggest economy fell into recession and the government recently slashed its 2009 growth forecast to 0.2 percent, but many economists now expect negative growth.

BERLIN (AP) -- Chancellor Angela Merkel said Wednesday that Germany faces a "year of bad news" in 2009 but insisted her government will do what is necessary to ensure Europe's biggest economy weathers the financial crisis.

Germany fell into recession in the third quarter and the government recently slashed its 2009 growth forecast by one percentage point to 0.2 percent -- although many economists now expect negative growth.

"It is clear that current forecasts predict at best marginal growth for next year," Merkel said in a speech to parliament.

"What we know is that 2009 will be a year of bad news, and because of that we are building a bridge to ensure that it will get better at the latest in 2010."

The comments come just as the EU is expected to announce later Wednesday a two-year European Economic Recovery Plan in which it calls on the 27 EU governments to spend a total of about euro130 billion ($166.54 billion) to help their economies.

Merkel highlighted in her speech what the German government has already done: a financial sector rescue package worth up to euro500 billion, and a proposed stimulus package of tax breaks and spending measures aimed at triggering investments of up to euro50 billion over the next two years.

"Looking forward, the government will do what is necessary," Merkel said. "Extraordinary circumstances demand special measures."

Merkel said the government so far has received requests for euro100 billion in loan guarantees and euro10 billion in fresh capital under its bank rescue package.

She also defended the economic stimulus package, which has been criticized by some as insufficient, and called on the opposition to view it positively.

She said the federal government is investing some euro32 billion in the next two years, and said that amounts to at least 1 percent of gross domestic product.

Merkel noted that advice from international organizations differed wildly, with the International Monetary Fund -- like Germany's government -- opposing cuts in value-added tax while the European Union appears to favor them.

That means that "we should take a path ... that is tailored to the situation in Germany," Merkel said.

Separately, Merkel wrote Wednesday in a joint newspaper column with French President Nicolas Sarkozy that Europe needed fiscal stimulus measures.

In the column, published in Le Figaro and the Frankfurter Allgemeine Zeitung, they said these measures could involve "financing investment and infrastructures, support for small- and mid-sized companies and direct support of households." Member states would decide their own doses of state support, they said.

More in Supply Chain