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So, there we go. We have a huge debate on our hands on the question whether the stimulation package of Euro 25 billion, announced by the Merkel government today, will give the German economy that intended "growth push", or not.

Some say it will, others say it won't. In the coming days this debate will reach fever-pitch.

In my opinion it's not really important which side wins the debate. More important is the fact that the "confidence boost" which the Merkel package could (and should) have brought to the economy has been lost in the "cloud of dust" kicked up over its composition and size.

But, here is the big point: Until now all commentators have focussed on the composition and the size of the package. None has noticed the problem lies in what the Merkel government has decided to call their package, namely a "Konjukturprogramm" (short-term growth stimulation package).

Fact is, the well-intended and well-structured and well-timed package has shot itself in the foot with its name! It's not a short-term growth-stimulating package. It's a package which makes changes to the structure of the economy...some measures will come into force months from now and most will impact the "Konjuktur" (business cycle) only many months, even years from now.

So, the Merkel government made an unfortunate mistake by calling it a package to stimulate growth in the short-term. By failing to see what it really is, they have undermined their own efforts. Had they called it by its proper name (ie. a structural reform plan) very few would have been able to find anything negative to say against it.

Then the politicians would have been a little bit further along the road of repairing voter confidence in them and the economy would have benefitted from a "confidence boost".

But, that's all out the door now.

The second point is: You simply can't stimulate the economy with a package of measures (any measures) if the nett result on the goverment books still is a lower deficit. The Merkel government won't bring the deficit down to 3% in 2006, but they will bring it down from 2005's lofty heights.

So, on balance the state will be a "braking influence" in the economy in 2006, not a growth-stimulating agent - even with this Euro 25 billion "stimulation package".

So, also from this angle its a "misnomer" to call the package a "Konjukturprogramm".

Why is all of this important? Because the Merkel government opens itselves to critisism with this name. How? When the package fails to show any impact on the economy in the next 8 to 12 months (because it will only show it's very clear impact later), the critics will be out with their tails up.

And the moaning will go on and on....Believe you me. And Angela will do some fire-fighting. And, in turn, the voters will ask themselves: Does this Merkel really know what she's doing when it comes to the economy...

Mensch Mayer! And, all of this is so unnecessary. Nothing of this had to be....

A shot in the foot, if ever you've seen one! And all because of bad communication.
11.1.06 00:04



In the last 48 hours I received a number of e-mails from "fellow observers" (also known as readers) urging me to keep up the "good work" and telling me they enjoy reading my stuff.

Thanks to those who have responded. In turn I'd like to urge readers to also "keep it up" (meaning you should please respond! And don't wait until you've got positive critisism. Feel free to hit me with that stuff which says: You wrote a lot of bull today.... )

I can take it...or at least, I think I can.

Something else. There seems to be a number of "regular readers" out there, because the daily readership number now swings between 15 and 30 (with a big drop-off over weekends, as can be expected).

So, the "club of fellow observers" is growing steadily. I'm very happy about that.

12.1.06 09:55


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