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Germany has gone from economic engine of the European Union to its party pooper.

As Europe slides into recession - the European Central Bank today is expected to cut interest rates by at least half a point - EU governments are urging Germany to unleash a hefty fiscal stimulus package. They are backed by many economists, virtually the entire German industrial sector and a few senior members of German Chancellor Angela Merkel's own party, the Christian Democratic Union (CDU).

Their argument is simple. Germany is the EU's biggest economy. Get Germany moving again and it will suck the other economies forward.

But Ms. Merkel is refusing to play along, though she insists she's keeping her options open. She won't get into "senseless" competition with other countries to deliver monster stimulus packages, she has said.

This week in a speech in Stuttgart, she said the CDU party "must have the courage to swim against the tide" in tackling the economic slowdown. Translation: Don't count on tax cuts.

Her position is infuriating the auto makers. German car sales fell almost 19 per cent in November as purchase credit dries up and consumer confidence sinks. Other industries are feeling the pinch too, as the economy deteriorates. "We are in a situation where we cannot wait any longer," Hanns-Eberhard Schleyer, head of Germany's crafts confederation, told the German media this week. "I beg the government for massive investment in infrastructure and a cut in taxes."

Some economists think Ms. Merkel is making a bad situation worse. "The economic storm is hitting Germany hard," said Henrik Enderlein, political economist at the Hertie School of Governance in Berlin. "The worst thing Germany can do now is take a hands-off approach."

Economists and investment executives said Germans in general, and Ms. Merkel in particular, have strong cultural aversions to debt and dread inflation. Many Germans believe it's absurd to use debt to cure a crisis brought on by debt.

There may also be an element of arrogance to her stance, they said; while there is no doubt Germany is slowing down, she seems convinced it is holding up better than its EU neighbours. "Essentially, there is big skepticism in Germany that fiscal policy works," said Daniel Gros, director of the Centre for European Policy Studies in Brussels. "And there is certainly some denial that the German economy is in trouble."

Germany and Canada stand out among the Western countries for their reluctance to sacrifice balanced budgets for economic stimulus. Almost every EU country has unveiled a hefty stimulus package as insurance against the potential failure of falling interest rates to rescue their economies.

On top of nationalizing a big chunk of its banking industry, Britain last week announced a £20-billion ($37-billion) stimulus package dominated by a reduction in the value-added tax (or VAT, the equivalent of Canada's GST) to 15 per cent from 17.5 per cent. Italy just put in place an €80-billion ($128-billion) package focused on helping poor people. Spain, grappling with a dramatic slowdown triggered by the bursting housing balloon, launched a €38-billion program. The European Commission (the EU's executive arm) recently urged the EU's 27 members states to borrow enough money to throw €200-billion at their ailing economies.

It would be an exaggeration to say Germany has done nothing beyond propping up Hypo Real Estate and other lenders since the credit crunch bankrupted Lehman Brothers in September. The country last month agreed to €32-billion of spending over two years. But the amount - equivalent to about 1 per cent of GDP - is small in relation Germany's vast economic size. "Angela Merkel does not want to be seen as throwing taxpayers' money out the window," said George Thilenius, a fund manager who runs Dr. Thilenius Fund Management in Stuttgart. "She is afraid of debt and inflation."

Germany prides itself on being a marvel of fiscal caution. It has always treated debt as potentially destructive. Germany's postwar nation builders took their cue from Otto Friedrich Bollnow, the German philosopher and mathematician who died in 1991. His "economic virtues" called for frugality and aversion to borrowings.

His principles still resonate today. Germans did not use easy credit to create a housing bubble; house prices have actually fallen since 1990. Household debt has remained stable and savings are high.

Germany, of course, took on a huge amount of debt in the early 1990s to pay for the integration and modernization of the former East Germany. The debt, combined with soaring labour costs, hurt German competitiveness. Since then, the country has worked hard to get its economic house in order. It did so through trade with Eastern Europe and through the liberal recruitment of cheap, well-trained labour, also from Eastern Europe.

The result was a sharp rise in productivity and competitiveness, though the low wages hurt private consumption. As the economy and exports took off, tax receipts rolled in and Germany was able to eliminate its fiscal deficit this decade. With an estimated budget surplus of 0.9 per cent of GDP this year, Germany is one of the few European countries still in the black (Britain's budget deficit is 3.8 per cent and growing). In a note published yesterday, Bank of America economist Gilles Moec said Germany "has much more firing power today than it did in 1991, when the cost of unification was weighing heavily on its budget."

Still, Ms. Merkel doesn't want to budge. Economists and market strategists think she either doesn't believe fiscal stimulus is worth plunging the country into deficit, or that it would be premature. She might be waiting for fresh evidence, if it comes, that Germany and the rest of the EU are in economic freefall.

"We should keep our gunpowder dry for now," German Foreign Minister Frank-Walter Steinmeier, who is a member of the Social Democrats, the party that formed a coalition government with Ms. Merkel's CDU, said in a Dec. 1 interview with newspaper Handelsblatt. "I'm skeptical of taking a watering can and spreading economic benevolence across the country - that goes for tax cuts for people who seem to be able to save enough already."

Gerd Langguth, a former parliamentarian and author of a biography of Ms. Merkel, has another theory as to why she's shying away from pumping up the fiscal volume: Political survival. The Social Democrats don't want the government to open the fiscal spigot and - guess what? - her coalition government is full of Social Democrats, among them Mr. Steinmeier and Peer Steinbrueck, the Finance Minister. She has to fight an election next September and Mr. Steinmeier will be her opponent. "The Social Democrats have a very strong opposition to spending," he said, "There is a coalition between the two parties. This makes it much more difficult for [Ms. Merkel] to make solutions."