German upper house approves economic package

BERLIN (Reuters) - Germany's upper house of parliament approved on Friday the government's planned package of measures to boost Europe's biggest economy.

Approval from the Bundesrat clears the way for most measures in the package, which the government says is worth 31 billion euros ($39.64 billion) over two years, to take effect on January 1.

Chancellor Angela Merkel's government drew up the plans in response to predictions that Germany may be facing its worst recession since World War Two due to the global financial crisis.

The federal government and 16 German states have been embroiled in a row over details of the financing of the package which threatened to delay the introduction of the measures but the two sides reached agreement at the last minute.

The government says ultimately the package will generate about 50 billion euros-worth of contracts and new investments.

But some other European countries, domestic politicians and economists argue the overall package, which includes building projects and greater provision of credit for small businesses, is insufficient.

Calls have mounted for tax cuts within Germany and some politicians want to bring in spending vouchers to boost domestic consumption.

Merkel has ruled out tax cuts before next September's federal election but has said her ruling left-right coalition will review the situation in January and may consider further action then.

In another move to alleviate the effects of the economic slowdown, Germany's lower house of parliament earlier passed plans to lower payroll taxes which finance unemployment insurance to 3.0 percent of gross wages from the start of 2009 from 3.3 percent.

Germany's president still has to sign off on the law containing the main measures in the economic stimulus package but that is a formality.

(Reporting by Matthias Sobolewski, Writing by Madeline Chambers; Editing by Ruth Pitchford)