German Chancellor Angela Merkel’s government is preparing a bundle of measures to put Europe’s largest economy back on track after a nosedive triggered by the coronavirus pandemic.
With the long-standing balanced-budget target scrapped and the constitutional debt brake suspended, it could be a bigger public stimulus program than the Marshall Plan following World War II. Not surprisingly, the controversy surrounding its size and use is proportionately big.
Some want aid to focus on a few, key industries, others argue for the broadest possible approach. Criteria range from preventing bankruptcies and saving jobs to forging a new economy by promoting innovation and environmentally sustainable practices.
Here are a few sample voices reflecting the intense debate. They include economists, business leaders, environmentalists, and politicians.
Size of Package
Germany is already spending big to contain the pandemic’s economic fallout. Measures ranging from furloughs for workers to loans and guarantees for businesses already will push up debt by a projected 156 billion euros ($170 billion) — some 4.5% of last year’s GDP.
Experts believe at least as much would be needed for the recovery phase. Their argument: Germany can borrow at negative rates for as long as 30 years, and turbocharged by spending, the economy will simply grow its way out of the debt.
“It would take a much bigger fiscal stimulus than 5% of GDP over the next two to three years to really get a proper restart of the German economy. There is absolutely no reason now to worry about how to reduce the debt relative to GDP in the next three or five or even 10 years.”
— Marcel Fratzscher, president of the Berlin-based economic research institute DIW
Yet the skeptics believe Germany should return its focus to budgetary probity as soon as the worst of the crisis is over. That means reinstating the debt brake, returning to running surpluses and cashing out investments in some of most crisis-stricken companies — the government just offered flagship carrier Lufthansa a 9 billion-euro bailout in exchange for a 20% stake.
“The debt brake was lifted during the crisis, but that doesn’t mean that good budget management is no longer in order. Conditions that are meant to expand the role of the state in certain sector are not useful. Excessive state conditions lead to a state-driven redesign of the economy.”
— Katja Hessel, Chairwoman of Bundestag’s finance committee
German media have already floated ideas for a new 150 billion-euro package containing payments to families as well as eased rules on investment subsidies.
“Those 150 billion euros are made up. We should tackle this the other way around — think about what makes sense and how we can finance it. It might turn out to be much less than the amounts currently being discussed. It’s irresponsible to think of a sum first and then come up with a plan.”
— Olaf Scholz, German finance minister
Where to Spend
With nearly all sectors of the economy affected by the crisis, the list of those lobbying for support is long. German carmakers have been pushing for a revival of a generous scheme that bolstered sales in the aftermath of the Great Recession — only to be told the government is working on a wider package.
“A sole cash-for-clunkers program like last time won’t be possible. The car industry has to evolve. We will support, but only where environmental targets are met.”
— Sebastian Brehm, member of Bundestag and finance spokesman for CSU
Some of the worst consequences of the coronavirus lockdown have been suffered by services providers — employment-heavy companies that tend to be less likely to survive sudden shocks. Politicians have already signaled that more aid will soon be on its way.
“In the coming months, we have to support sectors particularly badly exposed to the corona crisis — those include art and culture, food and hotel services and local shops.”
— Katharina Droege, member of Bundestag
How to Spend
Economists, lobbyists and politicians have argued for targeted measures to ensure money is deployed in the most-effective way.
Rekindling consumption is likely to be in the focus. Household spending plummeted after containment measures went into force, and hasn’t yet recovered, with people boosting savings in light of continued uncertainty.
Read more: Europe’s Bread Lines Get New Faces in Warning of Crisis to Come
Success in dealing with that would have the added benefit of shifting the economy away from its strong reliance on exports at a time of rising protectionism.
“Securing and strengthening incomes and with that purchasing power should be the center piece of the stimulus package.”
— Stefan Koerzell, executive board member of German Federation of Trade Unions DGB
To help the economy grow faster in the future, infrastructure investment is needed. Municipalities last year cited a 138 billion-euro spending shortfall, including on basic amenities as schools and streets.
“Public investments should be designed so that competition is strengthened. A focus could be health, digitalization, climate and education. Ideally, the state would create incentives for extensive private investments in those areas.”
— Veronika Grimm, member of government’s economic advisory council
Industry associations have identified a long list of fixes that would support company spending.
“Tax relief for companies is urgent. Strongly expanded loss offsetting is the most effective single measure to ease the negative effects of the pandemic on companies’ bottom lines” and “lawmakers should significantly improve amortization rules for investments.”
— Dieter Kempf, head of the industry lobby BDI
Green Focus
Before the pandemic, shifting to a carbon-neutral economy topped the public policy agendas in Berlin and Brussels. Chancellor Merkel, many of her allies, and even business leaders have pledged that any stimulus will reinforce not diminish such targets.
“Investments in climate protection are among the most effective economic impulses. Stimulus needs a clear compass: employment, innovation, and climate protection.”
— Svenja Schulze, German environment minister
Yet there is considerable disagreement as to what qualifies as green spending, and pressure to save jobs and businesses in the short-term.
“Every euro invested by the state to revive the economy must, where possible, be invested in a CO2-free economy.”
— Martin Kaiser, executive director at Greenpeace Germany
Gender and Equality
The coronavirus crisis is affecting women disproportionately. Job cuts and reductions in working hours have been particularly pronounced in hospitality — a sector with a predominantly female workforce.
With schools and kindergartens closed, women are also likely to have taken on a greater burden in childcare. Incentives to reduce working hours in the future could encourage mothers and fathers to pitch in equally.
”Working parents — singles or couples — ought to get income support to reduce work hours. And in order to avoid that it would again always be the mothers who take this transfer and reduce their working hours, we suggested to condition this benefit on the fact that in couples both parents have to share the care work.”
— Katharina Wrohlich, head of gender economics at DIW
Gender isn’t the only consideration in ensuring that those most at risk of losses during crises are adequately supported. Economists across countries have expressed concern that income inequality could increase in the long run.
”Groups that are especially vulnerable, like those in low-wage pay and with short-term contracts should be getting special attention, artists and self-employed as well. We should also think about increasing payments to the unemployed who saw their income fall during the crisis because many minor jobs were not available anymore.”
— Dirk Ehnts, economist and author of Modern Monetary Theory and European Macroeconomics
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