Germany unveils rescue package to fight recession

BERLIN/BEIJING) - Germany presented a stimulus package on Tuesday aimed at saving Europe’s largest economy from its worst recession since World War Two as Europe and Asia showed further evidence of the global slowdown.

By (Reuters)

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Published: Tue 13 Jan 2009, 9:53 PM

Last updated: Thu 2 Apr 2015, 4:19 AM

Germany’s 50 billion euro ($67 billion) plan is its second such package in as many months and comes as President-elect Barack Obama seeks approval to unlock the second half of a $700 billion U.S. package approved in October.

“This is the biggest package the Federal Republic of Germany has ever seen,” Finance Minister Peer Steinbrueck told German broadcaster WDR. The plan was agreed late on Monday.

Steinbrueck said the aid package involved a mixture of investment spending and tax cuts including incentives for new car purchases.

Obama said he had asked President George W. Bush to formally request the bailout funds so they could be ready when he takes office on Jan. 20.

U.S. Federal Reserve Chairman Ben Bernanke said on Tuesday that fiscal stimulus alone would not be enough to promote a lasting U.S. economic recovery and that further steps to backstop banks may be needed.

“Fiscal actions are unlikely to promote a lasting recovery unless they are accompanied by strong measures to further stabilise and strengthen the financial system,” Bernanke said at the London School of Economics.

France may boost its plans while Britain, which unveiled a 20 billion pound ($29.23 billion) package in November, faced a trio of surveys on Tuesday suggesting it had entered its deepest recession since at least the 1980s.

Governments are taking action as economies slow and companies hit by falling earnings are forced to shed jobs and operations.

Standard & Poor’s has warned that credit ratings on Spain, Greece and Ireland are under threat as the global crisis strains public finances.

On Tuesday, such concerns sent the yield premium that most euro zone government bonds offer over German Bunds soared to their highest levels since at least 1999.

Slowing economies are expected to spur the European Central Bank to cuts interest rates again on Thursday, economists polled by Reuters said.

Deep slowdowns

The OECD warned on Monday of “deep slowdowns in the major seven economies and in major non-OECD member economies, particularly China, India and Russia”.

The Bank of Japan said on Tuesday banks’ lending to Japanese companies rose at a record pace in December, as firms in the world’s second-largest economy struggled to raise cash via commercial paper or bonds were forced to borrow more from banks.

“Corporate executives are very worried because their cashflow is clearly dwindling,” said Hideo Kumano, chief economist at Dai-ichi Life Research Institute.

Sony Corp is expected to post its first operating loss in 14 years this business year, a source said.

A fall in Chinese December exports and imports also underscored the global slowdown which government aid packages are designed to tackle.

In their second consecutive fall, imports fell by 21.3 percent and exports fell 2.8 percent year on year.

HSBC economist Ma Xiaoping said she expected China’s exports to fall at an annual rate of about 20 percent in coming months in contrast to an increase of 17.2 percent in 2008.

Shares hit

Expectations of dismal earnings from companies including Citigroup and Sony pummelled shares and bolstered government debt.

Europe’s FTSEurofirst 300 index was down 1.88 percent as of 1352 GMT while U.S. stock index futures pointed to a lower open on Wall Street.

Top British retailer Tesco Plc was up 2.2 percent at 358 pence despite reporting its smallest rise in Christmas sales since the early 1990s.

In the United States, Citigroup shares fell 17 percent on Monday after a Wall Street Journal report said the bank might post a quarterly operating loss of at least $10 billion.

Asian indexes fell, with Tokyo’s Nikkei falling more than 4 percent.

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