How Germany Is Tackling Virus' Economic Impact
Muhammad Irfan 2 months ago Wed 25th March 2020 | 11:32 PM
After a decade as Europe's leading disciple of fiscal virtue, Germany is unleashing a 1.1-trillion-euro ($1.2 trillion) flood of government cash to counter the devastating economic impact of the novel coronavirus
Frankfurt am Main, (APP - UrduPoint / Pakistan Point News - 25th Mar, 2020 ):After a decade as Europe's leading disciple of fiscal virtue, Germany is unleashing a 1.1-trillion-euro ($1.2 trillion) flood of government cash to counter the devastating economic impact of the novel coronavirus.
Here are the most important steps MPs voted through on Wednesday: - End to debt taboo - To beef up its financial firepower and compensate for falling tax revenues as the economy shrinks, Berlin plans to borrow around 156 billion euros ($168.2 billion) this year.
EU financer ministers agreed Monday to activate a so-called "escape clause" on the bloc's stringent fiscal rules, giving even states already labouring under heavy debt burdens leeway to tackle the virus crisis.
The virus crisis is "unprecedented" in German post-war history, Finance Minister Olaf Scholz told parliament, but "we can afford" to tackle it.
"Germany enjoys the very best credit on financial markets," Scholz added.
As well as upending a years-long "black zero" no-new-debts policy, the new borrowing will blast through a deficit limit inscribed into the constitution in 2009.
Ending the crisis "comes first", Chancellor Angela Merkel has said, adding "we will see at the end of that where our budget stands".
- Backstop for big business - Germany wants to make sure bigger businesses can throw open their doors again once the danger has passed.
The country must avoid a "fire sale" of its economic crown jewels, economy minister Peter Altmaier has said.
Berlin will create a 600-billion-euro "economic stabilisation fund" offering 400 billion euros of guarantees for companies' debts, 100 billion to lend directly to or buy stakes in troubled firms, and 100 billion euros to fund state investment bank KfW.
Meanwhile the amount of company borrowing KfW can guarantee will be boosted by 357 billion euros, for a total of 822 billion.
The state bank can stand behind up to 90 percent of the value of a business loan.
Multiple government assurances that banks will not lose out if their borrowers cannot repay are intended to keep credit flowing to where it is needed.
To keep their liquidity flowing, companies will also be able to delay tax payments.
First in the queue for actual cash injections -- rather than guarantees -- could be the suffering tourism and services industries.
Airline group Lufthansa has cancelled almost all flights in the coming weeks, while tour operator TUI has already applied for state aid.
- Support for small business - Berlin says it will offer 50 billion euros of support for small and one-man-band companies, like photographers, musicians or carers.
Depending on the number of employees, individual companies will receive up to 15,000 euros each to keep the lights on.
Meanwhile freelancers applying for unemployment benefit will not be forced to seek new work.
- Top-ups for workers - Berlin has eased access to a programme that tops up workers' pay with government cash when their hours are slashed.
The scheme is widely credited with saving large numbers of jobs during the financial crisis of 2008-9.
Berlin expects more than two million people to work shorter hours in the coronavirus crisis, far outstripping the peak seen over a decade ago.
At over 10 billion euros, the massive estimated costs are nevertheless well below the federal labour agency BA's cash reserves of 26 billion.
Meanwhile people losing their jobs altogether because of the crisis will not face means-testing for unemployment benefit until the end of June.
Child benefits will also be made more flexible to support family incomes.
And German renters who fail to keep up with payments will be legally protected from eviction.
But landlords will still be entitled to have the arrears paid off once the crisishas passed.
- Cash for hospitals - Health minister Jens Spahn said Monday that his department would have an additional 10 billion euros this year to boost the health system.
Hospitals will get financial help to add beds and buy equipment like respirators, with Berlin aiming to double intensive care capacity from the 25,000 beds presently available.
Over three billion euros has been earmarked for immediate support to the health system, while 55 billion can be freely deployed as needed to fight the pandemic.
And pay for doctors, nurses and students and retired medical professionals enlisted into the battle against the virus will be increased.