Germany rebuffed Gordon Brown’s push for a coordinated fiscal response to the economic crisis yesterday when it rejected EU-wide tax cuts in the growth package to be announced by the European Commission next week.

With the British Government preparing to unveil its own fiscal stimulus, Berlin said that it would refuse to implement a commission proposal for EU members to reduce income tax and VAT.

The German stance represents a setback for Mr Brown, who has called on world leaders to relaunch the global economy through the sort of fiscal policies likely to be announced at Westminster next week. A leaked government document revealed that “the Commission’s request for member states to lower tax on low incomes and to reduce VAT rates on work-intensive services cannot be supported from the German side”.

Berlin’s nein is also a blow to José Manuel Barroso, the Commission President, who is seeking to coordinate a European response to the crisis to be made public on Wednesday.

“The plan will be a timely, targeted and temporary fiscal impulse,” he said.

Mr Barroso refused to put a figure on the plan, but Michel Glos, the German Finance Minister, said that it would total €130 billion (£110 billion), or 1 per cent of Europe’s GDP, while José Luis Zapatero, the Spanish Prime Minister, said that it could be double that amount. The initiative is likely to involve the announcement of a series of antirecession measures in member states, topped up with funds allocated from the EU’s own budgets, and loans from the European Investment Bank.

German sources said that it would include incentives for the car industry to produce more environmentally friendly vehicles, a €3 billion increase in investment in infrastructure and help for small and medium-sized businesses. The recovery plan is being touted in Brussels as an economic version of Europe’s joined-up response to the financial crisis last month.

Mr Zapatero said: “We are going to unite efforts, combine plans and, I hope, give a strong and combined response. If all of Europe, and the European Commission, act together with strength and courage, we can, to a certain extent, change current forecasts for 2009.”

However, governments were reluctant to put new money into a common pot to be spent by Brussels. Instead, Mr Barroso may end up announcing a wrap-up of measures already set by member states. Angela Merkel, the German Chancellor, looked likely to argue that the €23 billion package of spending, tax breaks and state-backed loans already announced by Berlin would be its contribution to the EU package.

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