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German Government Agrees on EUR 50B Stimulus Package

German government agreed details of the 2nd stimulus package worth EUR 50 bln. The program centers mainly on increased infrastructure investment, hoped to boost economic activity and tax cuts. The tax free base income will be raised and the entry tax level will be cut and the initial part of Germany rising marginal tax scale flattened. Social security contributions will be cut and families will receive additional child bonuses. The government also agreed an additional fund, said to be worth around EUR 100 bln, which will issue credits and guarantees to companies that have come under pressure. So no sign that the government is considering to take on direct stakes in companies, as the CDU had been demanding over the weekend. Help for the automobile industry will come in the form of incentives for owners of cars move than 9 years old to buy new energy efficient cars, for which around EUR 1.5 bln are set aside. And from July 1 car taxes will raise according to CO2 emissions, rather than the size of the engine. If those measures will be sufficient to safe the struggling car industry remains to be seen.
Meanwhile, the U.K. government is set to announce a GBP1.0 bln measure aimed at small businesses. U.K. Prime Minister Brown said yesterday that the government will announce measures this week to improve bank lending to small businesses and homeowners. Newspaper The Daily Telegraph reports today that the measure will consist of a GBP1.0 bln government credit pool from which firms employing less than 50 staff will be able to apply to a number of approved bank loans. Both Chancellor Darling and Prime Minister Brown has long urged banks to increase their lending, but without issuing an real threats or incentives.