Germany has moved forward with the implementation of a sweeping 130 billion-euro ($145 billion) stimulus package to help pull the country’s economy out of the worst recession since World War II.
At a special meeting on Friday, Chancellor Angela Merkel’s cabinet signed off on numerous key initiatives agreed on by her ruling coalition last week. The goal is to get the bulk of the plan approved by parliament before its summer break, which typically begins a two-month recess in early July.
With exports tumbling and unemployment surging, the government is under pressure to act. A value-added tax cut designed to reinvigorate demand after weeks of lockdown restrictions is set to go into effect on July 1. Other measures the cabinet approved include emergency aid for small and mid-sized companies, a family bonus of 300 euros per child and changes to tax rules to changes to tax rules to encourage people to buy less-polluting vehicles.
To pay for the massive stimulus package, the government intends to increase borrowing this year by at least 30 billion euros, requiring further suspension of constitutional debt restrictions, people familiar with the plan have said.
A supplement to the 2020 budget to pave the way for the borrowing, which also requires parliamentary approval, will be decided next week, he said, declining to comment on the size.
After years of budget surpluses and restrained spending, Germany has reduced debt from over 80% of gross domestic product in the wake of the 2008 financial crisis to around 60%, giving it room for extra borrowing, according to Scholz.
Even if the stimulus package were implemented in full, the economy is projected to shrink by 8.1% this year, according to the Berlin-based DIW institute.
©2020 Bloomberg L.P.
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