Germany agrees on $146 billion stimulus to save economy in recession

Angela Merkel is overseeing one of modern Germany's largest crises even as she prepares to step down as Chancellor. /John MacDougall/Pool via AP

Germany's governing coalition has agreed to a $146 billion stimulus package intended to soften the economic impact of the coronavirus pandemic.

The plan is the second major financial stimulus in the past three months for Europe's largest economy, which went into recession last month. The measures include a temporary reduction of the value added tax (VAT) and further financial incentives for purchasing electric vehicles.

After intense negotiations over two long days and into the night, German chancellor Angela Merkel's conservative Christian Democratic Union (CDU) party and their junior governing partner the Social Democrats agreed to a number of measures.

Unemployment rose to 6.3 percent from 5.8 percent over the past month, a figure that would have been significantly higher had it not been for a government program that allowed companies to cut back the hours and wages of more than seven million employees in return for keeping them on.

"It's clear that all of this requires a bold response," Merkel told reporters in Berlin. "It's about securing jobs, keeping the economy running or getting it going again."

Measures included temporarily lowering VAT from 19 percent to 16 percent in the six months from July to December, a move that is expected to cost the government more than $22 billion.

"This means that consumption will be stimulated and that it can be done in a socially just way, as VAT is paid by everybody," said Merkel. "We hope that this broad measure will reanimate the economy as a whole."

One of the most controversial issues ahead of the talks was the idea of subsidies for new car purchases and concern that they would promote environmentally unfriendly combustion engines.

Despite the haggling over the details, the spending-adverse German government has changed course dramatically since the crisis hit, opening up its pocketbook in a bid to stabilize the economy.

The German economy went into recession in the first quarter, shrinking by 2.2 percent, and the second quarter is expected to be worse.

Check out The Pandemic Playbook, CGTN Europe's major investigation into the lessons learned from COVID-19

Source(s): AP