Fri. Apr 10th, 2020

Germany launches largest financial aid package since World War II




The German Government has announced a set of massive measures, unprecedented since the Second World War, aimed especially at help companies and employees, which must be endorsed by parliament this week and which has forced the suspension of the restriction contained in the German Constitution, which prohibits public indebtedness of more than 0.35% of GDP. The set of measures will exceed 800,000 million euros, an amount with which the Minister of Finance, Olaf Scholz, hopes to “fight the economic crisis with all our strength, as well as the health crisis.”

The measures range from partial nationalizations to guarantees for credits destined to pay wages to forced workers to reduce their working hours, for which, Germany not only ignores the sacrosanct dogma of fiscal balance, but will go a step further and ask for permission. to Parliament to increase the debt ceiling. At least 400,000 million will be available to guarantee debts and liabilities and other 100,000 million to recapitalize companies, acquire participations and temporary nationalizations. “Our country must defend itself” and prevent an unpredictable crisis from “irreversibly damaging” the country’s economic structures, argued the Minister of Economy, the conservative Peter Altmaier.

A rescue fund is also approved for self-employed workers and companies with less than ten workers with up to 50,000 million euros. In addition, a “limitless” credit program has been launched to ensure the liquidity of companies and the conditions have been relaxed for companies to request a reduction in working hours with guaranteed employment.

The calculations of the German Government are based on the report prepared by the Ifo Institute in Munich, which predicts that the German economy will lose, in the worst possible scenario, up to 729,000 million euros due to the coronavirus crisis, as well as suffering the loss of cerma from million and a half jobs. This would mean a fall of 20.6% of GDP, which was already on the brink of recession, and is what the Government is trying to avoid with the huge economic injection. “The costs are expected to exceed anything known in Germany from previous economic crises or natural disasters in recent decades,” said Clemens Fuest, president of the Ifo, for whom Germany’s economy will suffer in 2020. a contraction of between 7.2% and 20.6%, depending on the more or less optimistic scenario, which represents an invoice of between 255,000 and 729,000 million euros.

The Ministry of Finance is also working on the design of strategies to “reactivate the economy after the necessary slowdown due to health needs.” “If the economy stalls for two months, costs can range from 255,000 to 495,000 million, depending on the scenario. The GDP would fall between 7.2 and 11.2 percentage points », warns Fuest, for whom, in the best scenario, the activity would fall to 59.6% in two months, it would recover to 79.8% in the third month and would reach at the fourth month 100%. “With three months of partial closure, costs would already reach between 354,000 and 729,000 million euros, representing a loss of growth of between 10 and 20.6 percentage points,” he added.

In this sense, the economist has stressed that each week of extension of the partial closure would cause additional costs of between 25,000 and 57,000 million euros, subtracting between 0.7 and 1.6 percentage points from growth. Thus, the extension of the closure between one and two months would cost up to 230,000 million and 6.5 percentage points of growth.

But what worries the German Government most is not even those drastic losses in the economy, but rather structural damage that could take at least a decade to recover, such as possible distortions in the labor market, which could lead to the destruction of 1, 8 million jobs. Another 6 million workers could be affected by shorter working hours.

The Ifo Institute estimates that, without taking into account the government guarantee and loan plan, as well as potential rescue packages at the European level, the impact will reach 200,000 million euros in the German public accounts, taking into account the foreseeable decrease in tax collection. With the activity practically paralyzed, the Government expects to collect 33,500 million euros less in taxes in 2020 alone.


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