Merkel Eyes Emergency Powers to Unleash Debt for Virus Fight
Germany may authorize emergency borrowing as soon as next week
(Bloomberg) --
German Chancellor Angela Merkel’s government is considering taking steps that would declare a state of emergency, a move that would permit unlimited borrowing to help stem fallout from the coronavirus.
Merkel’s ruling coalition wants to ask parliament for authorization for sweeping spending leeway, according to people with direct knowledge of the discussions. The Cabinet is set to sign off on the request in the coming days. The Finance Ministry didn’t immediately respond to a request for comment.
The historic move would be necessary under German law, which caps outlays under normal circumstances via a constitutional mechanism, known as the debt brake, which only allows for excess spending in crisis situations. The step could free up resources for a planned 40 billion-euro ($43 billion) fund to help self-employed people and small businesses, as well as other initiatives.
Merkel and her economic team have already said they will do whatever it takes to cushion the economic impact of the pandemic. But the emergency authorization would mark a significant step by abandoning the long-held principle of maintaining balanced budgets and unleashing Germany’s full spending power.
The ruling coalition, which has long resisted calls to boost investment even as its economy stumbled toward recession last year, is looking to stave off an even deeper crisis. German business confidence plunged the most in almost three decades this month, offering chilling evidence that Europe’s largest economy may be headed for darker times. The Ifo Institute on Thursday forecast a contraction of as much as 6% this year.
As Germans digested Merkel’s bleak warning Wednesday to take the situation seriously, citizens across Europe are facing weeks if not months of unprecedented curbs on daily life. While companies cope with a collapse in demand and production halts, governments are struggling to keep economies in position to recover.
“What we are doing is everything that’s needed and possible to make sure that there are no structural effects in terms of massive dismissals, jobs losses or company closures,” Spain’s Economy Minister Nadia Calvino said in a Bloomberg TV interview. “We want it to continue to run at a rhythm that allows us to kick start as soon as possible and resume dynamic growth -- the one we were on just before the crisis hit.”
Confinement measures in France are likely to last longer than the planned 15 days, the head of the national health agency said Thursday, while Italian Prime Minister Giuseppe Conte said he will extend a national lockdown. The number of deaths in Italy has reached almost 3,000 in Europe’s worst outbreak, and the continent now has more confirmed cases than China, where the virus originated.
In the U.K., Boris Johnson’s government denied it’s planning to keep Londoners in their homes and ban them from leaving the capital as it deployed military personnel to help slow the spread of the disease. The Bank of England cut interest rates to a record low and added 200 billion pounds ($230 billion) to its asset-purchase program in its latest emergency action.
Reaching Limits
Germany, which has so far steered clear of a full lockdown, may be preparing for tougher measures. Europe’s largest economy plans to mobilize more than 100,000 army reservists, a sensitive step for the country. For historical reasons, there are strict rules regulating the use of troops for tasks normally carried out by the police.
“We are prepared for the moment when the civil services will reach a limit,” Defense Minister Annegret Kramp-Karrenbauer said at a news conference.
There’s a growing sense of desperation, amid warnings that cases could surge into the millions. Germany is looking into treating less severely-ill patients in hotels or other large facilities, the plan suggested and called on clinics to search their basements for old equipment -- including beds and ventilators -- that could be repurposed in a pinch.
Bavarian state leader Markus Soeder, a member of Merkel’s conservative bloc, urged the federal government to finance a stimulus plan worth as much as 150 billion euros. Measures, including an existing 550 billion-euro liquidity program for companies, are insufficient, he said.
“There must be more,” Soeder said on Thursday in the Bavarian state parliament in Munich. “I believe that we will need a big finance and growth package on the national level.”
The liquidity program, which Merkel’s government lined up last week, might be useless because many banks would no longer be able to provide the necessary loans, Soeder said.
On Wednesday evening, a somber Merkel addressed German citizens in a rare television address, implored her compatriots to abide by restrictions bringing social life to a standstill, calling the coronavirus pandemic the country’s greatest challenge since World War II.
“This situation is serious, and the outcome is open,” Merkel said. “This is an historic task and can only be accomplished together.”
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