Merkel spurns Obamas stimulus plea, keeps cashbox closed as she

Written by Bloomberg | Updated: Mar 17 2009, 07:08am hrs
Forget Nicolas Sarkozy. Ignore Gordon Brown. Angela Merkel, taking advantage of Germanys economic heft, is now the European Unions dominant figure. And leaders from Warsaw to Washington had best not forget it.

Just as the German chancellor vetoed a bailout for eastern Europe on March 1, she is now leading European opposition to US President Barack Obamas call for a global pump-priming package. Shell determine the fate of a $6.4 billion infrastructure proposal at an EU summit in Brussels later this week. Its Merkel who holds the key to the cashbox, and she doesnt want to give it up, says Jean-Dominique Giuliani, chairman of the Robert Schuman Foundation, a research center in Paris.

Merkels rejection of more stimulus touched off the first trans-Atlantic clash of the Obama administration and led critics to say she risks deepening the global recession. Even as finance ministers from the Group of 20 nations were meeting in southern England March 14, seeking to paper over differences with a pledge to deliver a sustained effort to boost growth, Merkel was 67 km away in London, defending her opposition to further spending.

Germany really has contributed its share, said Merkel, 54, as she stood alongside Brown, the U.K. prime minister.

The remarks were her third rebuff in three days to Obamas March 11 call for concerted action around the globe to jump- start the economy, comments echoed by Lawrence Summers, his top economic adviser, and Treasury Secretary Timothy Geithner.

It is a reversion to type for Germany, which built its postwar society on the principle of monetary stability after the economic havoc of two world wars. Germany authored the limits on budget deficits for countries using the euro currencyonly to flout them during the reign of Merkels Social Democratic predecessor, Gerhard Schroeder.

With the world economy set to shrink for the first time since World War II, Merkel has forged a European position not to go beyond tax cuts and emergency spending that the EU says amounts to 3.3 percent of gross domestic product.

Nobel laureate economist Paul Krugman says Merkel is underestimating the scope of the crisis. Germany is a giant stumbling block to global efforts to fight the recession, he told Der Stern magazine last week. Obama on March 14 said there isnt a fundamental conflict or contradiction between the positions of the G-20 countries on how to deal with the crisis, only a difference in details.

Merkels defenders point to International Monetary Fund data that show Germany spending 2% of GDP to fight the recession in 2010, edging out the USs planned 1.8%. US spending of 2% this year will top Germanys 1.5%.