Steinbrück indicated at the weekend that he was in talks with the Bundesbank about a sale of gold reserves to finance future investment projects.

Steinbrück told a press conference that the government wants to sell part of the Bundesbank's approximately 3,433 tons of gold reserves and invest the proceeds in interest-bearing assets controlled by the bank. He added that the newly formed coalition government's plans for 25 billion euros ($30 billion) in new investments were not dependent on the gold sale plan.

The building blocks of the government's public investment package for 2006 are job creation, transport, scientific research, support for small-and medium-sized businesses and family benefits.

The coalition led by conservative Angela Merkel has opted to increase the 2006 deficit in a bid to kick-start growth and create jobs before cutting back to within European Union limits in 2007.

Steinbrück's plan would include using the interest from the gold sale to pay for research and development projects and would not flow into the federal budget, a stipulation made clear in past discussions with the Bundesbank which is against such transfers.

Bundesbank denies any involvement in gold plan

However, responding to Steinbrück's remarks, Bundesbank President Axel Weber denied any involvement in any government plans to sell gold and said that any such plan should respect the bank's responsibilities, which include managing the gold reserves.

"I welcome the fact that the designated finance minister wants to contact us so we can explain the principles and the framework of the bank's investment decisions," Weber said in a statement. "I assume one will agree to respect each others responsibilities."

New coalition expects net borrowing to surge

In his statement which presented the financial aspects of the new coalition agreement between the German conservatives and Social Democrats, Steinbrück added that German net borrowing would swell to a record 41 billion euros in 2006 but is expected to fall markedly the following year.

The incoming minister also confirmed the government planned to tax all capital gains made by individuals on the sale of shares or real estate from 2007 at a rate of 20 percent. Capital gains are currently tax free in Germany if shares are held for more than a year or if property is held for over 10 years.