The German government has agreed a EUR12bn package to help the domestic automotive industry maintain its competitiveness in the current economic downturn and support employment levels, in particular.

Local press agency dpa reported that chancellor Angela Merkel believes that the package will support EUR50bn investment over the next two years. “We are building a bridge to the possibility that things will improve by 2010,” she said.

In addition, a two year amnesty on taxation on new cars, announced last week as part of a new CO2-linked tax system, will cost the government around EUR1.4bn.

Environmentalists have reacted angrily to the fact that the government is applying the tax incentive to all new cars, including ‘gas guzzling’ SUVs.

The package still has to be approved by parliament and the tax system needs to be given the green light by the federal council.

Specific measures include the fact that time banking can be calculated over an 18 month period, rather than the usual 12 months, and up to EUR15bn will be made available in credit.