Angela Merkel was preparing last night to agree a €50 billion stimulus package to shield Europe’s largest economy from the worst ravages of recession – weeks after she dismissed Gordon Brown’s similar recovery plans.

Last month the German Chancellor rejected calls to slash taxes or greatly boost spending. Peer Steinbrück, the Finance Minister, also made plain his contempt for Mr Brown’s measures. “The same people who would never touch deficit spending are now tossing around billions,” he said last month. “The switch from decades of supply-side politics all the way to a crass Keynesianism is breathtaking.”

Now €50 billion (£46 billion), spread over 2009 and 2010, seems to be on the table in Germany, where the economy is expected to contract by about 3 per cent this year.

The likelihood of Germany adopting the package will relieve Downing Street after the attack by Mr Steinbrück. British ministersare not expected to comment until the deal is finalised but government sources expressed relief that Germany was moving towards a substantial economic boost.

The idea seems to be to announce a package just before Barack Obama’s presidential inauguration on January 20. The combination of US and German initiatives could help to restore international business confidence.

The Christian Social Union, the Bavarian sister party of Ms Merkel’s Christian Democrats, has been insisting that tax cuts form part of the recovery plan. The Chancellor had been set against this – part of her contempt for the British measures is the conviction that VAT cuts do not encourage consumer spending – but buckled during talks on Sunday night.

The Social Democrats, the junior partners in the coalition Government, say that tax cuts will merely make the rich richer, and instead want child benefits increased and personal contributions to health insurance cut.

Even the Christian Democrat budget expert Steffen Kampeter was astonished that the Government could contemplate such debt. “The stimulus programme, as presently conceived, is simply a cheque that will have to be settled by the next generation,” he said. “These measures are not about economic effectiveness but about political symbolism and creating the illusion of action.” Ms Merkel’s line hitherto has been identical to that of Mr Kampeter: deficit spending does not work.

The pressure has been piling on from Europe, however. Germany’s neighbours, above all France, argue that it has a special strategic role because the European economy is so integrated. If Germany does not prod its consumers into spending more, the European economy will take longer to recover.

Germany has been hearing this at European Union and international meetings for two months. A new US president is likely to join the chorus.

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