Berlin  - Heads of the three parties supporting German Chancellor Angela Merkel gathered in Berlin Monday for make-or-break talks on a fresh round of stimulus for the weakening German economy.

The Social Democrats (SPD) and Christian Social Union (CSU) have been wrangling for weeks with Merkel's Christian Democratic Union (CDU) over the package, with each of them eager to piggy-back long- standing party policies onto the huge surge of state spending.

The government predicts the moves will seed 50 billion euros (66 billion dollars) in new spending this year and next.

The CSU has pushed for cuts in taxes on the middle class while the SPD has favoured more welfare, cuts in taxes for the low-paid and higher taxes on the rich.

For powerful elements of the CDU, balancing the federal budget and reining in spending remains a main priority, but Merkel has eased back some of her criticism of European neighbours who have boosted state spending massively in an effort to thwart the recession.

SPD leader Franz Muentefering attacked the CSU, telling Monday's issue of the newspaper Bild that Merkel should tame the Bavarian "sister party" to the CDU. He called the CSU demands "annoying" and "vain."

The grand coalition of Germany's main parties has become more fractious with the approach this September of a general election.

However there has been bipartisan support in the Merkel coalition for key parts of the stimulus package, including more investment in education, highways and railways.

A slew of fresh data has underscored that a deepening recession is taking hold in Europe's biggest economy.

Figures last week showed a dramatic 10.6 per cent plunge in German exports in November along with a hefty drop in factory orders and a bigger-than-forecast rise in December unemployment.

The new stimulus package, following a first approved in November, is designed to help the nation limp through what is expected to be the country's biggest economic downturn since the Second World War.

On top of that, Berlin has earmarked 100 billion euros to help German industry face up to the growing world-wide economic crisis.

Leading German companies have already announced plans for layoffs and cutting production as global economic growth spirals downwards.

Merkel is expected to brief opposition parties early Tuesday and then make a public announcement on the outcome of her talks with Muentefering and the CSU leader Horst Seehofer and their key lieutenants.

In a related development, the Finance Ministry effectively rejected a call from a southern premier, Guenther Oettinger of Baden Wuerttemberg, for a "bad bank" to be set up to take over distressed loans from Germany's troubled banks.

Torsten Albig, a ministry spokesman, said, "There is no debate going on about this topic among those who are responsible." (dpa)