Berlin - Chancellor Angela Merkel's ruling coalition met Monday to discuss a new economic stimulus package designed to protect Germany from recession amid a rift over tax cuts.

The talks between Merkel's conservative Christian Democrats (CDU) and her Social Democrat (SPD) partners are expected to lay to groundwork for a decision on new fiscal measures by mid-January.

With general elections looming in September, the two sides went into the talks with different plans on how to shield Europe's biggest economy from the global economic downturn.

While the CDU favours a plan that includes income tax cuts to spur domestic demand, the centre-left SPD is against such a move, arguing for lower health insurance contributions instead.

The package, which CDU floor leader Volker Kauder said could amount to 50 billion euros (69 billion dollars) over the next two years, is expected to include investments in schools, public works and energy efficiency.

Merkel's government unveiled its first stimulus package in November, which totalled about 31 billion euros. Experts said this was not enough to revive the economy because it included only about 12 billion euros in new spending.

Government spokesman Ulrich Wilhelm said no decisions were expected from Monday's meeting at the federal chancellery in Berlin. He said a formal decision would be made at another meeting of coalition leaders on January 12.

The CDU and its Bavarian sister party, the Christian Social Union, agreed at a separate meeting on Sunday evening to make tax cuts a central plank of the new stimulus measures.

The SPD, which unveiled its own 40-million-euro package on Sunday, wants the creation of special investment fund for community projects as well as higher taxes for the nation's top earners.

Foreign Minister Frank-Walter Steinmeier, the SPD chairman, will face-off against Merkel for the chancellorship when the nation goes to the polls on September 27.

Despite their differences, the two sides are expected to hammer out a compromise in the coming week, senior officials from both parties said Monday. (dpa)