Germany Mulls Stimulus Package to Boost Post-Virus Economy
Germany Mulls Stimulus Package to Boost Post-Virus Economy
(Bloomberg) --
Chancellor Angela Merkel’s government is evaluating a stimulus program to help revive the German economy after the coronavirus crisis subsides.
Should Germany enter a deep recession after the pandemic is contained, a debt-financed spending package to get the economy growing again would be needed, according to a person close to the discussions.
The measures, which could involve consumer spending and corporate-tax relief, would be targeted for short-term impact, though a broad distribution of funds isn’t on the table, said the person who asked not to be identified because the deliberations are private. The finance ministry declined to comment.
After speaking with the government’s economic advisers in a conference call on Tuesday, Economy Minister Peter Altmaier said he was presented with a range of proposals beyond the government’s 750 billion-euro ($814 billion) rescue package.
The goal is to “prevent the pandemic from leading to an infection, an enduring crisis for the economy,” he said in a briefing with journalists in Berlin.
“We can’t lose sight of the prospects of a new upswing after the crisis has been overcome,” said Altmaier. “We must do everything to ensure that -- as the infections decrease and public life starts up again and companies return to normal production -- forces of growth gain the upper hand.”
An initial estimate by Finance Minister Olaf Scholz projects a contraction of about 5% this year, but some government officials fear the recession could be even deeper. Altmaier said the damage will likely be bigger than the financial crisis more than a decade ago.
New data on Tuesday acted as a reminder for how devastating the virus-fighting measures are for Germany’s economy. In March, IHS Markit’s gauge of manufacturing and services activity plunged sharply, signaling that GDP in the euro area’s biggest economy could drop by around 2% in the first quarter already.
Lars Feld, the government’s top economic adviser, said that while he expects a V-shaped recovery, the rebound depends on the length and severity of the lockdown.
“It is absolutely clear that it depends on how much and how rigidly we have to maintain this shutdown,” said Feld, speaking alongside Altmaier via video conference.
Merkel’s government has unleashed an unprecedented barrage of measures to cushion the blow from the near complete halt of modern life across much of the world. The sharp drop in commercial activity poses a significant challenge to Germany’s export-led economy.
The chancellor has suspended her government’s commitment to a balanced budget, lining up hundreds of billions of euros to provide small- and large business with liquidity and has even opened the door to buying stakes in stricken companies.
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Government officials are concerned that these measures may not be enough to kick-start the economy once the virus has been contained and are considering a more classical stimulus program largely financed by new debt, the person said. Bolstered by years of budget surpluses, Germany has sufficient fiscal fire power to act, the person added.
In unveiling the rescue package on Monday, Scholz said that the federal government would “not hesitate” to protect German jobs and businesses from the effects of the crisis.
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