Mr Schroeder needs an economic plan fast

According to reports from a meeting of the ruling Social Democratic Party, Chancellor Gerhard Schroeder is to present the stimulus package, along with a range of long-awaited reforms, to parliament on Friday.

Observers have been expecting the German Government to submit reform proposals ever since it was re-elected in September, but reports of direct cash aid come as a surprise.

If true, the news underlines the severity of Germany's economic position, which seems to have worsened sharply since the beginning of this year.

Work wanted

Germany's main problem is unemployment, which has risen sharply since September, in defiance of Mr Schroeder's pledge to create jobs.

The reported aid package will involve direct cheap loans to local authorities and to the construction sector, which has been especially hard-hit.

Employers counsel that it should go hand-in-hand with liberalisation of Germany's rigid labour laws, which make hiring and firing relatively expensive.

There are also concerns over the size of Germany's budget deficit, which is already close to breaching European Union regulations.

The finance ministry has reportedly been working on ways to introduce the cheap-loans plan without troubling the federal budget.

Mixed results

Injecting cash directly into rich-country economies is a rare tactic.

So far, only Japan - mired in a decade-long recession - has made a practice of flushing state funds into the private sector.

Policy-makers tend to be wary of the inflationary effects, and warn that state spending can often be clumsily targeted, or even wasted entirely.

But Mr Schroeder is under heavy pressure to come up with fresh ideas, especially ones that will not offend his core supporters in the trade unions.