Challenger to Germany's Merkel criticizes austerity policies, calls for European growth plan

BERLIN – Chancellor Angela Merkel's challenger in the upcoming election said Tuesday that her government's insistence on budget austerity across Europe is creating economic stagnation and called for a new Marshall Plan to revive the continent.

In his first major foreign policy speech ahead of the September election, Peer Steinbrueck criticized Merkel's handling of the debt crisis that has engulfed the 17-nation eurozone and pushed the region into recession.

Throughout Europe's financial crisis, Merkel's government has insisted that indebted countries make dramatic spending cuts and reform their economies. Such austerity measures have been obligatory — and particularly harsh — for countries like Greece or Portugal that have received billions of emergency loans from their European partners.

But with Europe stuck in a recession and unemployment at record highs in several countries, critics have said that these policies have worsened the economic downturn, lowered government revenues and made it harder to meet agreed deficit targets.

Steinbrueck noted that some countries were being forced to cut spending by up to five percent of annual economic output in one year.

"Have you any idea what would happen if Germany had to save five percent each year?" he said in his speech to students at Berlin's Free University. "You wouldn't be here, you'd be out on the streets."

Steinbrueck, a former finance minister, said he too believed in keeping public spending under control. "There's no question that they need to consolidate their state budgets, the question is over what time frame."

Recalling the massive U.S. economic aid program for Europe after World War II, Steinbrueck called for a new Marshall Plan to avoid a "diabolical spiral" toward further joblessness and economic despair.

Such a program could be funded in part by new taxes on financial transactions and would invest heavily in job training and education, he said.

Steinbrueck's Social Democratic Party is trailing Merkel's Christian Democrats in the polls three months before the Sept. 22 general election. But if Merkel's preferred coalition partner, the pro-business Free Democrats, failed to clear the five percent threshold for parliament then a grand coalition with Steinbrueck's party is possible — as happened during Merkel's first term from 2005-2009.