Chancellor Angela Merkel warned EU partners on Wednesday against competing to produce big stimulus packages for their economies and defended her plans for Germany as policies of "measure, middle ground and reason".
The European Commission is to urge the bloc's 27 member states later on Wednesday to unite on a two-year programme to revive their struggling economies even if it means busting the region's national deficit target.
Merkel has faced pressure from opposition parties, her own conservatives and EU partners to step up stimulus measures for Europe's largest economy, but she has ruled out any cuts to income tax or value-added tax (VAT) in the next few months.
"We should not get into a race for billions," Merkel told the Bundestag lower house of parliament. "We should walk a path of measure and middle ground, which is made-to-measure to the situation in Germany."
Merkel said measures her cabinet approved this month, aimed at generating about 50 billion euros in new investment and contracts, would help Germany steer through tough economic conditions in the months ahead.
Economists estimate the package is worth less than 0.5 percent of German GDP over the next two years and have criticised it as too modest, particularly given Germany's strong budget situation.
French President Nicolas Sarkozy promised on Tuesday to launch a major stimulus plan that would include measures to boost the construction and car sectors.
British Prime Minister Gordon Brown's government has unveiled plans for a 20 billion pound package that includes sales tax cuts and is worth over 1 percent of GDP.
YEAR OF BAD NEWS
Merkel said 2009 would be a year of "bad news" but said the government was laying the foundations for a recovery in 2010.
Merkel heads a broad coalition of conservatives and the centre-left. Germany will hold a federal election in 2009.
"Germany is strong. I would even say very strong," she said.
But opposition politicians criticised Merkel in parliament for failing to recognise the seriousness of the downturn.
Germany sank into recession in the third quarter and risks posting its biggest contraction since World War Two next year.
"Not just the opposition says that you still haven't understood the scale and gravity of the economic situation. That's what people are saying in France and Britain too," said Rainer Bruederle from the opposition Free Democrats. "What we now need is serious recession economics," he told parliament.
Germany has passed a 500 billion euro rescue package for its banks and the government has said it is assessing potential support for cash-strapped carmaker Opel.
Merkel has tried to strike a balance between economic stimulus measures and maintaining a close watch on the federal budget which has been brought close to balance by her government after years of big deficits.
The conservative chancellor has said she will meet with her Social Democrat (SPD) coalition partners in January to assess the need for any further economic stimulus measures.
Politicians within Merkel's Christian Democrats (CDU) and their Christian Social Union (CDU) sister party, as well as members of the opposition Free Democrats (FDP), have called on the chancellor to cut income taxes now to boost the economy.
