Merkel Coalition Agrees on New $10.8 Billion Crisis Package (1)

Germany’s ruling coalition agreed on a 10 billion-euro ($10.8 billion) package of further measures to dampen the economic impact of the coronavirus crisis, as party leaders settled differences over how to tackle the next stage of the pandemic.

Chancellor Angela Merkel and coalition leaders said they will temporarily reduce value-added tax for restaurants and increase the amount of money paid as state wage support as part of a seven-point plan to fine-tune the government’s economic crisis response. The agreement came after almost eight hours of wrangling in the chancellery in Berlin.

Finance Minister Olaf Scholz said wage support had played a key role during the financial crisis just over a decade ago in protecting German jobs while other nations suffered.

“We are making the system more stable to cope with the crisis and that will help us get through the long period we will need to get a grip on the virus,” Scholz said in an interview with ZDF television Thursday. Reducing sales tax for restaurants will help give businesses planning security, he added.

The ruling parties had bickered over how fast to move with further support for the Europe’s largest economy, which has been hit hard by the global fallout from the pandemic. Merkel’s Christian Democrat-led bloc at first pushed back against immediate new economic stimulus measures demanded by its Social Democratic partner.

But with the agreement, Germany’s grand coalition -- which seemed to be coming to an end only a few months ago -- once again managed to close its ranks in the fight against the virus. The government has won widespread praise for its decisive response to the pandemic’s fallout after it swiftly implemented an 1.2 trillion-euro rescue plan to provide businesses with liquidity and aid the battered economy.

“With this package, we can give the right impulses, but it nevertheless provides us with the leeway for further measures in the future,” Annegret Kramp-Karrenbauer, Merkel’s CDU party leader, told reporters after the talks in Berlin.

The new package marks an important victory for Merkel’s coalition partner, the Social Democrats. Senior SPD politicians have pushed for additional stimulus measures including an increase in state wage support, a program under which the government pays a large part of employees’ income if their working hours are temporarily being reduced. Until the end of 2020, the state will now pay up to 87% of net income instead of previously up to 67%.

‘Much, Much More’

“All in all, this isn’t a bad result, even if we could have done much, much more,” SPD co-leader Saskia Esken said in a tweet. “And because we don’t know what the future will bring, especially not at the moment, we will probably have to do much, much more.”

Merkel’s CDU/CSU bloc initially preferred to wait for more clarity on the full economic impact of the virus. “We have to be careful not to introduce each week a new measure followed by another measure the next week,” Merkel said Monday.

Scholz and Economy Minister Peter Altmaier also announced a few weeks ago they are considering anotherstimulus package to kickstart the economy once the pandemic has been contained.

The new measures come as Europe’s biggest economy is facing a deep recession. The government expects output to decline by at least 5% this year, and the country’s public-sector deficit will likely widen to more than 7% of gross domestic product due to extra spending to tackle the crisis.

(Updates with SPD comments starting in third paragraph)

To contact the reporters on this story:
Arne Delfs in Berlin at adelfs@bloomberg.net;
Birgit Jennen in Berlin at bjennen1@bloomberg.net

To contact the editors responsible for this story:
Ben Sills at bsills@bloomberg.net

Daniel Schaefer, Iain Rogers

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