War of Words

The simmering war of words between Berlin and Downing Street heated up Thursday as both Merkel and Prime Minister Gordon Brown prepared to fly to Brussels for a crucial EU summit.

Responding to claims by German finance minister Peer Steinbrueck that Britain's conversion from economic and financial prudence to heavy state borrowing was "crass Keynesianism" of "breathtaking" proportions, representatives of Brown's government said that Germany's ability to respond effectively to the global economic downturn was being hampered by domestic politics.

"They are arguing in Germany about the right way to go," schools minister Ed Balls told Sky TV. "Once the politics in Germany is resolved they will be acting with us too.

"We will find Germany joining the consensus of countries around the world who know that action now for our economies is the right thing to do," Balls added.

Brown himself failed to distance himself from the growing row during a radio interview given shortly before he departed for the EU summit. Alluding to the confusion and division in the German government over what action to take, Brown told London's LBC radio: "I do not really want to get involved in what is clearly internal German politics here, because they have a coalition in Germany with different political parties.

"The important thing is that almost every country around the world is doing what we have been doing, in terms of supporting ailing banks and providing fiscal stimulus," he added. Not taking such action would mean "failing in the role of government," he said.

"The German government is investing more, they've just announced a fiscal expansion so that they can invest in public works, and helping their banks and doing these sorts of things," Brown said.

Steinbrueck's VAT jibes prompt testy response

Steinbrueck criticized the 2.5 percent cut in Value Added Tax (VAT), to 15 percent, introduced by the British government from December 1 in an outspoken interview with US magazine Newsweek. "All this will do is raise Britain's debt to a level that will take a whole generation to work off," Steinbrueck said, echoing criticism leveled at Brown by the Conservative opposition in Britain.

However, government sources in London said it was Germany which was "out of step" with other European nations on the need to go beyond the massive bail-out packages agreed in November.

But it was "unusual" for a member of a foreign government to interfere so openly in another state's affairs, they said.

Government sources added that Brown's administration was not concerned about the risk of a potential rift with Germany, saying they were "relaxed" about Steinbrueck's comments.

"We have a good working relationship with (German Chancellor) Angela Merkel," a source at Brown's Downing Street office told Reuters. "We are working closely with the German government. It is recognized that world opinion is almost universally in favor of the need for a fiscal stimulus."

Germany unwilling to take similar steps

Speculation of a rift increased this week after Merkel -- in charge of Europe's biggest economy -- was left out of the London summit on Monday involving Brown, French President Nicolas Sarkozy and European Commission chief Jose Manuel Barroso.

Those three firmly endorsed a 200 billion euro ($262.5 billion) stimulus proposal for the European Union. Barroso said it would be unreasonable to think about any plan without the active participation of Germany.

But Steinbrueck, on the Social Democrat side of Germany's coalition government, has said there will be no additional economic package before Easter. Conservative Merkel says she will review the situation in the New Year.