BERLIN, June 5 — A huge German stimulus package could help Europe’s biggest economy recover swiftly from a deep slump triggered by the coronavirus pandemic, analysts said yesterday.
The country’s biggest post-war package, worth around €130 billion (RM630 billion), includes cuts to VAT, handouts to families, and subsidies for greener transport options.
Chancellor Angela Merkel defended the programme in an interview with the ARD broadcaster late yesterday. “If we did nothing, the debt and the losses would be even greater,” she said.
In response to a question, she admitted that “for (her) too, in normal times” such a programme would have been “unthinkable”.
But it is crucial to guarantee the future of the “seven million people” on short-time working, she insisted. Having “millions more unemployed” in the country was “not an option”.
The size of the programme surprised, particularly for a country that has been often criticised by neighbours and allies alike for its reticence to spend.
“It is not only the size of the packages which is remarkable but also the fact that the German government has made a complete U-turn in its approach to fiscal policy,” said ING analyst Carsten Brzeski.
“This not only the case for Germany but also for Europe. From austerity champion to big spender — a few months ago... such a comment on German fiscal policy would have been almost unthinkable.”
Spiegel Online noted that “Merkel had promised a ‘courageous answer’ to the crisis.”
“The economic programme of the coalition is a surprise and ... not a negative one.”
Berenberg Bank analyst Holger Schmieding said the package backs the belief that “Germany will recover comparatively well from the Covid-19 recession with little lasting damage to its long-term supply potential.”
Here are the main elements of the package:
Triggering consumer spending
Value-added tax (VAT) will be cut from 19 to 16 per cent from July to December this year, a catch-all to boost spending.
Families will also get cash directly via a bonus of €300 per child, regardless of the parents’ income level or whether they were directly hit economically by the crisis.
Help for companies
Sectors worst hit by the pandemic, including hospitality, tourism and sports, will get help to the tune of €25 billion.
Those that have seen their revenues shrink dramatically will have the bulk of operating expenses picked up by the state.
Social security contributions will also be capped at 40 per cent of wages — to help companies keep costs down.
Investments for future
Electric-car buyers will get a boost, with a state rebate doubling to €6,000.
But the coalition refused to sign off on a bonus covering petrol and diesel vehicles after an energetic environmental protest.
To boost greener modes of transport, the state will plough €5 billion into rail giant Deutsche Bahn, whose traffic slowed to a crawl during Germany’s lockdown.
Another €7 billion are earmarked for a “hydrogen strategy” that includes how the technology could help wean the country off fossil fuels. — AFP