German finance minister calls stimulus plan 'ineffective populism'

German Finance Minister Peer Steinbrueck has defended Berlin's refusal to back a proposed multi-billion-euro economic stimulus plan, dismissing it as "ineffective populist measures".

Germany does not have to go along with the idea of spending more to ease the economic crisis just because other countries are doing so, Steinbrueck told the weekly newsmagazine Der Spiegel.

"We can ease (the effects of the crisis) in a targetted way. But we are not all powerful," he said, adding he rejected "the argument that 'a lot of help helps a lot'."

German Chancellor Angela Merkel this week was cool to the idea pushed by French President Nicolas Sarkozy to contribute to a proposed 200-billion-euro (254-billion-dollar) European stimulus plan drafted by Brussels.

"The Germans do not have to accept a European proposal where we do not understand what could be the economic impact," said the Social Democrat minister.

Berlin has already shown a "strong response" to the global financial crisis, he added, having earlier this month committed around 31 billion euros over two years to support Europe's biggest economy, which official figures showed fell into recession in the third quarter.

Steinbrueck called for "not threatening (the recovery process) with ineffective populist measures."

He also sarcastically dismissed the idea of lowering VAT (value-added tax, or sales tax) on purchases, saying: "Great idea! That would cost 20 billion euros, without any guarantee it would be effective."

Meanwhile, another member of Merkel's government, Economy Minister Michael Glos, has said he is planning huge income tax cuts totalling 25 billion euros in response to the economic crisis.

According to the weekly newsmagazine Focus to be published Monday, Glos wants a rapid decision from the government on the measures, which would assist those on the lower end of the pay scale and the middle classes.

However, the political factions are split over the proposal with Merkel and her conservative Christian Democrats (CDU) opposed to tax cuts, and the question is expected to figure in the CDU's congress which begins Monday.

Merkel repeated her opposition to the proposed cuts and said she would prefer broader fiscal reforms to "establish justice for the taxpayer," if her party won federal elections in September next year.

"Progressive tax rates force a growing number of people with average earnings to pay very high taxes," she told the Frankfurter Allgemeine Sonntagszeitung newspaper.

"We have to do something something against this unjust development which punishes key drivers of the economy," she said.

Sarkozy has announced he will present on Thursday a "very strong" economic stimulus plan for France. He gave no details but said it would include measures for the energy sector which he characterised as a "reservoir" of jobs.

Finance Minister Christine Lagarde said Tuesday that France planned to pump 19 billion euros into key industries.