German Fiscal Stimulus Already Creeping In, Whatever Merkel Says
In the first phase, the government is stepping up investments that improve efficiency and boost confidence.
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To much of the outside world, Germany seems so wedded to its balanced budget policy that it won’t deploy fiscal stimulus until it’s too late.
But officials in Chancellor Angela Merkel’s government have already drawn up a raft of options. Some may never see the light of day, but others are already being rolled out, according to people with direct knowledge of the plans. They asked not to be identified commenting on private discussions.
The two-pronged approach is based on the government’s reading of the current economic situation as well as a cost-benefit analysis of the stimulus package launched in 2009. That study found that some measures were more effective than others.
In the first phase, the government is stepping up investments that improve efficiency and boost confidence. Those may take months or even years to trickle through to the real economy.
If they prove insufficient and the economy risks a serious recession, the government would launch a short-term stimulus program geared to kick-start domestic demand. Finance Minister Olaf Scholz has said this could be worth around 50 billion euros ($55 billion).
Possible Stimulus Package
Here are some of the measures being considered:
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The government considers it’s still not clear whether Germany will plunge into a full-blown recession and, as a result, the full array of remedies may not need to be deployed.
Germany’s five leading research institutes slashed their forecasts for economic growth this year and next, citing trade tensions and Brexit weighing on German industry. GDP is to grow 1.1% in 2020 from a previous forecast of 1.8%, and 0.5% this year from an earlier prediction of 0.8%.
Traditionally, Germany shifts to high alert whenever the global economy looks to be slowing -- the country’s dependence on exports means that it tends to head south with the rest of the world. But with the domestic market still relatively robust and the ECB renewing monetary stimulus, Merkel’s economic team judges that this time the path toward recession is less certain.
On the down side, a prolonged trade war could eventually lead to a much bigger fallout than expected, according to another scenario being considered. That spurred the government to gradually increase investments and bolster the labor market as a preemptive and precautionary measure.
Finance Minister Scholz told ARD TV on Wednesday that economic forecasts are pointing toward a recovery and that there is currently no need for a stimulus program.
“We are well prepared because we have good financial resources and can react, should it really come to an economic crisis but so far it’s just slower growth,” Scholz said.
Last month it unveiled a 54 billion-euro climate program, for which the cabinet on Wednesday will approve an initial 9 billion-euro package in a supplementary budget for 2020. The government is seeking parliamentary approval this year, so that the measures can take effect as quickly as possible, said one official involved in the discussions.
During October, the labor ministry plans to unveil another bill with subsidies for employees to reduce their work load and enter training programs in times of crisis. A similar program back in 2009 helped secure some 1.4 million jobs, according to government estimates.
How many of these other measures get deployed will depend on whether the economy enters a “deep recession” and there are no real criteria to define that. So the economists who drafted the plans won’t decide whether to implement them.
That call is down to the politicians.
To contact the reporter on this story: Birgit Jennen in Berlin at bjennen1@bloomberg.net
To contact the editors responsible for this story: Ben Sills at bsills@bloomberg.net, Raymond Colitt
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