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Germany Attacks ‘Crass Keynesianism’ of U.K. Stimulus (Update2)
By Robert Hutton and Alan Purkiss

Dec. 11 (Bloomberg) -- Gordon Brown’s economic rescue plan was attacked by Germany’s finance minister, the day after the U.K. prime minister, in a slip of the tongue, claimed to have “saved the world.”

In an interview with Newsweek, Peer Steinbrueck described the world’s sudden switch from “decades of supply side politics” to “crass Keynesianism” as “breathtaking.” The people who “would never touch deficit spending are now tossing around billions,” he said, and the only result will be to raise Britain’s debt to “a level that will take a whole generation to work off.”

The comments are an embarrassment for Brown, who has tried to paint the opposition Conservatives as isolated in their hostility to his fiscal stimulus program. His handling of the economic crisis has helped to narrow the Conservative lead in opinion polls in the last three months. Brown will meet German Chancellor Angela Merkel at a summit of European leaders in Brussels today.

“It doesn’t exist. It doesn’t exist!” Steinbrueck said of what he derided as “the Great Rescue Plan.” Referring to Brown’s 2.5 percentage point cut in value-added tax, a levy on sales, he asked whether someone is “really going to buy a DVD player because it now costs 39.10 pounds ($58.35) instead of 39.90 pounds.”

‘Answered Back’

“This comment from the German finance minister totally demolishes Gordon Brown’s central political charge that only the Conservatives oppose his expensive and ineffective VAT measures,” Conservative Treasury spokesman George Osborne said in an e-mailed statement. “On the day he claimed to be saving the world, the world answered back.”

Brown has promised a 20 billion-pound package of tax cuts and spending between now and April 2010 to help counter Britain’s first recession since 1991. The Treasury predicts the budget deficit will soar to 8 percent of gross domestic product in the year starting April 2009 as the recession pounds tax revenue. Debt is projected to double to more than 1 trillion pounds by 2012.

“I don’t really want to get involved in what’s clearly internal German politics,” Brown told LBC radio today. “The important thing is that almost every country around the world is doing what we’ve been doing.”

‘National Situation’

The German finance ministry said there is agreement that each European country should be free to pursue measures “tailored to its national situation” and denied that Steinbrueck’s comments were a criticism of Britain.

“Nothing could be further from our minds,” the Berlin- based ministry said in an e-mail today. “The finance minister only made it clear within the context of a debate on instruments going on in Germany why a temporary lowering of value-added tax is not a suitable means for Germany to fight the global recession.”

Brown, French President Nicolas Sarkozy and European Commission President Jose Barroso met in London on Dec. 8, denying any rift with Merkel over a 200 billion-euro ($131 billion) stimulus package for the European Union.

Merkel, who has been criticized by economists, German politicians and industry lobbies for not doing enough to counter the recession, was left out the discussions.

In Germany, the largest European economy, lawmakers have passed a 32 billion-euro program of stimulus measures over two years. France, the third largest, has announced 26 billion euros of measures to spur growth, focusing on public investment and early tax reimbursement for companies.

Recession Unavoidable

While policies can ameliorate the economic situation, Steinbrueck said, the recession is unavoidable, whatever any government does. The European authorities who believe the answer is lavish spending programs are saying, in effect, “let’s get the Germans to pay because they can,” he added.

“I’m not going to speculate on what might have led the German finance minister to say such a thing in an election year,” Brown’s spokesman Tom Hoskin told reporters in London.

Brown’s over-claim came yesterday during his weekly Prime Minister’s Questions session. “We not only saved the world, er, the banks,” Brown began before being drowned out by jeers from Conservative lawmakers. He eventually corrected himself: “saved the world’s banks.”

Conservative leader David Cameron seized on the mistake. “It’s now on the record,” he said in reply. “He’s so busy talking about saving the world, he’s forgotten about businesses in this country.”

To contact the reporter on this story: Robert Hutton in London at rhutton1@bloomberg.net. Alan Purkiss at apurkiss@bloomberg.net
Last Updated: December 11, 2008 08:10 EST