German ruling coalition agrees on second stimulus package worth 130bn euros
By Alexander Bueso
Date: Thursday 04 Jun 2020
(Sharecast News) - Chancellor Angela Merkel managed to break an impasse between lawmakers from the governing coalitions two parties, both of which are facing elections in late 2021.
Overnight, Merkel's Christian Democratic Union and the Social Democrats agreed on a €130bn euro stimulus package to help drive a return to growth.
Included in the proposal were a temporary reduction in value-added tax, funds for building the country's 5G network, investing in the rail network and a doubling of incentives for the purchase of electric cars - but no direct support was forthcoming for conventional cars.
"We couldn't just set out a stimulus package that was done in the traditional sense," Merkel reportedly said.
"It had to be a package of measures that contained a view to the future. And this is precisely what we have emphasized."
Reports in the week leading up to the agreement had centred on a stimulus package of between €50-100bn.
A previous stimulus package in response to Covid-19 pandemic, approved in March, had included €1.306trn in fresh borrowing to finance social spending, funding to purchase stakes in hard-hit firms, loan guarantees and liquidity support for German companies.
For his part, the country's prime minister, Olaf Scholz, said the government would work to return its debt to GDP ratio to 60% after the expected increase to about 80% in the wake of the crisis.
"If we suffer a long-lasting depression, which lasts for 10 years then we have a problem," Scholz told broadcaster ZDF.
"But if output returns to pre-crisis levels at the end of next year or at the beginning of the following year then we have a good chance to generate the revenues we need to pay for it."
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