Funds News

UPDATE 2-Merkel warns against "unrealisable" new spending

(Adds quotes, background)

BERLIN, March 19 (Reuters) - Chancellor Angela Merkel said on Thursday that Germany had spent more than its fair share to boost its economy and warned in some of her strongest language to date against a rush to enact new stimulus measures.

Berlin has come under pressure from the United States to agree new stimulus steps when G20 countries meet in London next month, but Merkel has repeatedly ruled that out.

She wants the summit to focus instead on introducing new regulations that would rein in free-market excesses the German government blames for the current crisis.

“It is not time to look at more growth measures. I disagree with this idea completely. The existing measures must work, they must be allowed to develop,” she said in a speech to the Bundestag lower house of parliament before heading to a European Union summit in Brussels.

“A competition to outdo each other with promises will not calm the situation,” she added, describing transatlantic contradictions in response to the crisis as “very dangerous”.

“We need to send good psychological signals from London and not engage in a competition for unrealisable growth packages. We have already done our part.”

Germany has pushed through two stimulus packages it estimates are worth 81 billion euros ($109.3 billion).

The new spending will push the German budget deficit well above the EU’s 3-percent of gross domestic product limit next year, but Berlin is keen to return to fiscal discipline after that and ensure fellow members of the bloc follow suit.

The German government estimates that the economy, Europe’s largest, will contract by 2.25 percent this year, easily its worst performance in the post-war era. Unemployment began rising late last year and the future of big companies, such as carmaker Opel, is at risk.

Merkel said the EU summit should send a signal that member states were determined to return to sustainable fiscal policies once the crisis was over.

“In my view and the view of the German government this is absolutely necessary to ensure confidence returns to the markets and to our citizens,” she said in her speech.

Merkel also vowed to oppose any additional Europe-wide investment projects at the EU summit which did not focus on the immediate needs of the economy.

“Germany has made it clear that additional measures can only be accepted, and we will only agree to them, if they start in 2009 or 2010 because it makes no sense to spend money in 2013, 2014 or 2015 when the crisis has long been overcome,” she said.

Turning to the financial woes of eastern EU members, Merkel said Germany stood ready to help.

“We have observed that some member states, not just companies or banks, but member states are in an emergency situation,” she said. “We have repeatedly made clear that these countries can count on our solidarity.” (Writing by Noah Barkin)