Germany approves new economic stimulus

1.3 billion euros of economic stimulus for Germany.

Chancellor Angela Merkel’s ruling coalition agreed on an economic stimulus package on Wednesday to accelerate Germany’s recovery from the coronavirus pandemic, bridging differences over incentives to buy new cars and relief for heavily indebted municipalities.

In a press conference after talks that lasted well into the night, Merkel said the package would total 130 billion euros (about $ 146.02 billion) and would include a lower value-added tax (VAT) to boost the consumption.

“The size of the package will amount to 130,000 million euros for the years 2020/2021, 120,000 million of which will be spent by the federal government,” said Merkel. “Then we have an economic stimulus package, a package for the future.”

The stimulus program follows a € 750 billion rescue package agreed in March that encompassed a debt-financed supplemental budget of € 156 billion.

Germany’s measures, which together with liquidity aid and loan guarantees amount to more than 30% of its economic output, go substantially beyond any other national emergency program launched by other countries in the euro zone.

Merkel said that VAT will be reduced from 19% to 16% for six months from July 1.

The package also includes at least € 10 billion a year to help municipalities struggling with lower incomes.

The magnitude of Germany’s new spending has raised concerns among officials from economically weaker countries that the discrepancy in aid measures could worsen imbalances in the bloc and distort the European Union’s single market.

The measures also include a one-time allowance of € 300 per child to help families, as well as doubling incentives to promote the sale of electric cars.

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