Merkel's Coalition Agrees To €130BN Stimulus Package To Boost German Economy

One week after the European Commission presented a plan on May 27 for a €750bn recovery fund for the EU including €500bn in grants and €250bn in cheap loans, late on Wednesday Chancellor Angela Merkel’s coalition agreed to a €130bn German stimulus package, coming in higher than initial expectations of €50-100bn, to help Europe’s biggest economy recover from the coronavirus crisis, Bloomberg reported.

After two days of negotiations, the chancellor overcame an impasse in the governing parties late Wednesday to broker a deal that includes tax relief for companies (including lowering the value-added tax), money for families, car-sales incentives (including double rebates for purchases of electric cars) and aid to municipalities.

Following a brief period of unity at the height of the pandemic, party differences throttled efforts to revive Germany’s faltering economy, with Social Democrats pushing for higher spending and measures focusing on workers and families, while the CDU was keen to limit the amount of new debt and get businesses investing again.

In a historic reversal to Germany's traditional "black zero" budget rules, after an initial stimulus proposal in March, Merkel’s administration agreed to spend whatever it takes to get the country growing again. And, according to Bloomberg calculations, including programs to guarantee company liquidity, Germany has made more than 1.2 trillion euros available - the most in the European Union. This comes at a time when German unemployment rose in May to the highest level in almost five years.

The euro briefly extended its intraday advance for the day following the news, reaching a 12-week high of $1.1257, before paring its gain for the day to around 0.6%.