Germany Eyes Targeted Stimulus When Crisis Ends, Scholz Says

26 Mar 2020, 03:21 PM IST

(Bloomberg) -- Germany is considering a “timely, targeted and temporary” stimulus plan to revive economic growth once the coronavirus epidemic subsides.

While additional spending to kick-start growth may follow on from Germany’s 750 billion-euro ($813 billion) rescue plan, banks are unlikely to get extra help, Finance Minister Olaf Scholz said in a Bloomberg TV interview, saying that a financial collapse looks unlikely and “makes no sense to speculate about.”

“The question of stimulus is coming when we are coming through the crisis,” Scholz said after the government secured emergency spending powers from parliament. “It must be timely, targeted and temporary to help the economy start again.”

Scholz -- one of the key architects of the country’s largest-ever rescue package -- has been the face of Germany’s efforts to tackle the economic fallout from the virus. The Social Democrat has vowed to do whatever is necessary to secure jobs and businesses, saying years of budget surpluses gives the country the leeway to spend freely now.

“We have all the firepower we need, and we will use it,” said Scholz, who spoke earlier in the Bundestag in place of Angela Merkel. The chancellor remains in precautionary quarantine at home.

Backed by broad political support, the government plans to unleash a barrage of debt-financed measures to counter what Merkel and Scholz have both called Germany’s biggest challenge since World War II. The 156 billion euros in new borrowing will be “enough for the next months,” Scholz said.

The package includes loans, guarantees and aid for large and small companies as well as money to buy stakes and even completely nationalize some stricken businesses.

The measures come as the economy braces for its biggest slump in decades. Business confidence is collapsing at a record pace amid restrictions to slow the spread of the disease, and the Ifo economic institute predicted mass bankruptcies in what is likely to be a deeper recession than during the financial crisis.

Germany’s Virus Package
Supplementary budget financed by 156 billion euros in debt, or about 4.5% of GDP, for higher social spending and a 50 billion-euro liquidity fund for self-employed people 600 billion-euro rescue fund 100 billion euros in loans through state-run development bank KfW (potentially financed with new debt) 100 billion euros earmarked for equity stakes in companies (potentially financed with new debt) 400 billion euros in guarantees Additionally, the state’s KfW bank has 500 billion euros available to boost liquidity of German companies

Germany’s Virus Package

Supplementary budget financed by 156 billion euros in debt, or about 4.5% of GDP, for higher social spending and a 50 billion-euro liquidity fund for self-employed people
600 billion-euro rescue fund
- 100 billion euros in loans through state-run development bank KfW (potentially financed with new debt)
- 100 billion euros earmarked for equity stakes in companies (potentially financed with new debt)
- 400 billion euros in guarantees
Additionally, the state’s KfW bank has 500 billion euros available to boost liquidity of German companies

Scholz said that buying stakes in virus-hit companies will only be a temporary measure and full buyouts are unlikely because “we will have ways to avoid this.”

“We might buy stocks or so, but it is only for the duration of the crisis,” he said, adding that the country will defend German firms from bargain-hunting foreign investors. “We would be able to react to that, with legal measures but also with a lot of fiscal money we could use.”

Unlike in the financial crisis more than a decade ago, banks are unlikely to get special treatment.

“If we make it feasible for them to continue with their business in giving liquidity to the economy, I think it will be enough for them,” said Scholz. “And if we are stabilizing the companies of the economy, we will also stabilize the banks.”