Coronavirus (COVID-19): Germany’s ruling coalition agreed on a 10 billion-euro ($10.8 billion) package of further measures to dampen the economic impact of the coronavirus crisis, as party leaders settled previous differences over how to tackle the next stage of the pandemic.
Chancellor Angela Merkel’s coalition leaders said they would temporarily reduce value added taxes for restaurants and increase the amount of money paid as state wage support as part of a seven-point plan to fine-tune the government’s economic crisis response. The agreement came after almost eight hours of controversial debates in the German chancellery in Berlin.
The ruling parties had bickered over how fast to move with further support for the Europe’s largest economy, which has been hit hard by the global fallout from the pandemic. Merkel’s Christian Democrat-led bloc has at first pushed back against immediate new economic stimulus measures demanded by its Social Democratic partner.
But with the agreement, Germany’s grand coalition — which seemed to be coming to an end only a few months ago — once again managed to close its ranks in the fight against the coronavirus. The government has won widespread praise for its decisive response to the pandemic’s economic fallout after it had been fast to implement an 1.2 trillion-euro rescue plan in recent weeks to provide businesses with liquidity.
“With this package, we can give the right impulses, but it nevertheless provides us with the leeway for further measures in the future,” Annegret Kramp-Karrenbauer, Merkel’s CDU party leader, told reporters after the talks in Berlin.
The new package marks an important victory for Merkel’s coalition partner, the Social Democrats. Senior SPD politicians have pushed for additional stimulus measures including an increase in state wage support, a scheme in which the government pays a large part of employees’ income if their working hours are temporarily being reduced. Until the end of 2020, the state will now pay up to 87% of net income instead of previously up to 67%.
Merkel’s CDU/CSU bloc initially preferred to wait for more clarity on the full economic impact of the virus. “We have to be careful not to introduce each week a new measure followed by another measure the next week,” Merkel said on Monday.
Finance Minister Olaf Scholz and Economy Minister Peter Altmaier have also announced a few weeks ago they are considering another stimulus package to kickstart the economy once the pandemic has been contained.
The new measures come as Europe’s biggest economy is headed for a tough road ahead. The government expects output to decline by at least 5% this year, and the country’s public-sector deficit will likely widen to more than 7% of gross domestic product in 2020 due to extra spending to tackle the coronavirus crisis.
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