Since 2014, Germany has proudly resisted calls for additional expenditure to boost the economy, defending assiduously the famous Schwarze Null – the Black Zero: no budget should end up in a deficit. Most political parties and leading economists and financial analysts subscribed to this mantra, until the deadly coronavirus left the largest European economy reeling. Facing the prospect of economic wipe-out as streets went into lockdown, Germany’s finance and economy ministers yesterday announced an emergency budget worth 750 billion euro – that’s practically double the size of the original expenditure planned for 2020.
While politicians traditionally trying to downplay economic adversities, German Finance Minister Olaf Scholz was categorical: “We don’t need to speculate; it’s clear there will be a negative economic impact. Anyone could say that just by looking at the empty high streets.” Yet the sheer impact of the crisis was highlighted by data published by Ifo, a renowned German think tank, which estimated that a shutdown could wipe off anywhere between 7% and 20% of GDP. In its report, the Ifo gloomily predicted that “this could put the situation at the high point of the financial crisis into the shadows.”
Through this emergency budget, the German Government has increased health care spending significantly, with a €3 billion boost to double the number of hospital beds available for intensive care, which currently stand at 28,000. Berlin is also allocation loans of up to €15,000 to small businesses and self-employed to cover their halted activity. For larger enterprises, while a special fund which provides bridging capital has been created, the prospect of direct government intervention has not been ruled out.
Scholz also announced that a financial market stabilization fund which was not used for years after the 2009 financial crash had subsided, would come into play again as part of the emergency plans. The DAX, the stock market index consisting of the major German companies trading on the Frankfurt Stock Exchange lost one-third of its value in the past four weeks.
However, the new initiatives do not consist solely of throwing money at problems as a number of measures were also enacted to protect the most vulnerable sections of society. These included rent protection to ensure that landlords cannot evict those who fall back on their rent due to the coronavirus, while rules on short-time work were amended to avoid companies firing staff if they fail to tally a certain number of hours.
Chancellor Merkel participated in the Cabinet meeting from home as she is currently under quarantine after a doctor she came in contact with tested positive last week. She tested negative in a first test, but German media reports that further tests will be taken later on this week.
DW
