Germany puts EUR 130 billion on the table to revive its economy

Chancellor Angela Merkel on Wednesday announced a historic stimulus package for the German economy, which will include reducing VAT, subsidizing families and even buying electric cars.

Germany announced on Wednesday, June 3, a gigantic € 130 billion package over two years to stimulate its economy weakened by the coronavirus pandemic.

This plan aims not only to support the supply through the reduction of value added tax or new aid to companies in difficulty, but also the demand through subsidies to families or an increase in the subsidy for electric cars.

These investments must be made now “because we want to make the future possible, especially for future generations,” Angela Merkel said Wednesday night after two days of tough negotiations between conservatives and social democrats, the partners of the government coalition.

“Responsibility for Europe”

“So we have an economic recovery plan, a plan for the future and, of course, beyond that, we now take care of our responsibility for Europe and the international dimension,” she said. .

She referred to the project she is currently undertaking with French President Emmanuel Macron to establish mutual debt between EU countries to revive the European economy ahead of the coronavirus.

Although Germany has so far been less affected by the human-level pandemic than its neighbors, with around 8,500 dead, its economy, which is highly dependent on exports, has been severely shaken.

This incentive plan, in addition to the huge plan of more than € 1,000 billion set up in March, at the height of the pandemic, provides support to companies and billions of euros in guaranteed loans.

Support for the automotive sector

Among the measures announced on Wednesday, in addition to the temporary reduction in VAT from 19% to 16% through December 31, 2020 (from 7% to 5% for the reduced tax rate) and debt transfers from municipalities to the federal state, a one-time allowance of EUR 300 per child for families or a reduction in electricity costs for individuals, according to the 15-page agreement.

The most debated point was the introduction of a purchase bonus to support the automotive sector, which practically stayed for several months. The Social Democrats (SPD), which opposed all subsidies of polluting cars, seem to have won the battle here: In the end, members of the “grand coalition” voted against a premium for the purchase of low-emission gasoline or diesel cars. However, the premium for the purchase of an electric vehicle doubles, from EUR 3,000 to EUR 6,000.

The concluding agreement also promotes the acceleration of the renovation of buildings for the coming years: The program which specifically encourages the installation of more climate-friendly heating systems will now increase by one billion euros, which will be brought to 2.5 billion.

“A wasted opportunity”

However, one of the representatives of the Left radical left, Bernd Riexinger, spoke of “a wasted opportunity” and said that social support measures were not sufficient.

While Germany saw unemployment continue to rise to 6.3% in May, pushing companies to apply for partial unemployment for more than 11 million workers since March, the government wanted to give back its support to companies in difficulty. Up to EUR 25 billion will be released to help the most affected sectors.

Angela Merkel justified this support to support the millions of workers who are currently short-working: “This shows how fragile the whole (economy) is and that it is necessary to succeed in stimulating the economy if jobs are to be insured”.

With AFP