Analysis: so is he right? | Profile: Peer Steinbrück | He's Merkel in disguise - Rosemary Righter

Gordon Brown was this morning forced into a withering dismissal of the German Finance Minister, who described the Prime Minister's economic policies as "depressing" and "crass" ahead of the European summit today.

Mr Brown said that the attack from Peer Steinbrück was a "matter of internal German politics" — quite a riposte in the normally cautious language of diplomacy.

Mr Steinbrück's intervention in the affairs of another member state took No 10 and No 11 by surprise last night. In an interview with Newsweek magazine, he derided the headline 2.5 per cent cut in VAT announced by Alistair Darling, the Chancellor, in the Pre-Budget Report, and said that a generation of taxpayers would be saddled with the debt.

As well as emphasising the divide within Europe — and in Germany — over Mr Brown's policies, the attack gave an open goal to British opposition parties, both of whom used it to attack the Government's bailout.

In the interview, Mr Steinbrück described the Government’s switch to a "crass Keynesianism" to try to spend its way out of the economic crisis after years of preaching fiscal rectitude as "breathtaking".

On the VAT cut, he added: "Our British friends are now cutting their value-added tax. We have no idea how much of that stores will pass on to customers. Are you really going to buy a DVD player because it now costs £39.10 instead of £39.90?

"All this will do is raise Britain’s debt to a level that will take a whole generation to work off.

"The same people who would never touch deficit spending are now tossing around billions. The switch from decades of supply-side politics all the way to a crass Keynesianism is breathtaking."

Ministers see his outburst as part of a struggle going on within the German Government between a cautious faction led by Mr Steinbrück and another group that favours an big injection of public cash into the economy.

Angela Merkel, the German Chancellor, is believed by British diplomats to be moving towards the French and British positions of backing a fiscal stimulus. The added complication is that Britain's decision to cut VAT was also seen as embarrassing for Berlin, and Mr Steinbrück, who raised the tax in his country recently.

The intervention was seized on by the Tories and Liberal Democrats as public proof that Mr Brown's claims that everyone agreed with him did not really stand up.

George Osborne, the Shadow Chancellor, said that it "totally demolished" Mr Brown’s claim that "only the Conservatives oppose his expensive and ineffective VAT measures".

Mocking a slip of the tongue by the Prime Minister in the Commons yesterday, he said: "On the day he claimed to be saving the world, the world answered back."

Vincent Cable, the Liberal Democrat's Treasury spokesman, said that the criticism came about as a result of Mr Brown's previous "lecturing" of the Germans. "The more substantial point is that Steinbrück and his colleagues are really pretty fed up about being lectured by Gordon Brown on how to run their economy," he said.

"The German Social Democrats have long being telling the British that the City of London and the sort of greed and irresponsibility that took place in the financial market was potentially very unstable. Gordon Brown took the credit and lectured the Germans and they are getting their own back in a serious way."

Mr Brown, who will head to Brussels later today, reiterated that "every country around the world" agreed with him.

He told LBC Radio in London: "Actually, the German Government is investing more. They have just announced a fiscal expansion so that they can invest in public works and helping their banks and doing these sorts of things.

"I do not really want to get involved in what is clearly internal German politics here, because they have a coalition in Germany with different political parties.

"The important thing is that almost every country around the world is doing what we have been doing." Not taking such actions would mean "failing in the role of Government", he said.

Mr Steinbrück's interview was a highly unusual intervention by a minister being openly critical of the internal policies of an ally. It promises to cause some interesting exchanges today when Mrs Merkel meets Mr Sarkozy, Mr Brown and others in Brussels.

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