BERLIN: Anyone expecting Germany to ride to the rescue of Europe’s economy is in for a wait.
Increasing global pressure and a tally of 1,000 coronavirus cases this weekend still weren’t enough to convince the politicians governing the region’s most fiscally potent country to unleash a major stimulus. That reticence is likely to endure as long as they deem the outbreak’s effect on consumer spending to be temporary and containable.
Such a policy is consistent not only with Germany’s long-held reluctance to take on debt, but also its previous playbook in fighting the 2008 financial crisis with a slow-motion reaction. While that approach may frustrate its Group of Seven counterparts holding out for the country’s fiscal firepower to bolster a joint response, it isn’t their tax money to spend.
“I’m pretty sure if it’s necessary the government will do something, but experience shows they’ll have a bit of a hard time with it, ” said Andreas Scheuerle, economist at DekaBank in Frankfurt. “It will be a reactive rather than proactive actor.”
That slog was underscored by the seven-hour marathon crisis talks on Sunday night between politicians in Germany’s coalition, which secured only a small step toward fiscal loosening that stopped far short of the stimulus its neighbours wish it would unleash.
Chancellor Angela Merkel and colleagues agreed on measures helping companies to halt work temporarily, and an investment boost starting next year. The focus is firmly on cushioning the blow for businesses rather than helping out consumers, and the package didn’t even incorporate the mooted acceleration of an income-tax cut that is already planned later in the year.
While Finance Minister Olaf Scholz said on Monday the government would do “everything” to ensure the economy weathers a crisis, the response for now looks likely to be a drip-drip approach.
One official from Merkel’s CDU party wonders aloud if it might be hard to galvanise support among lawmakers for any more fiscal action at all this month, because data proving economic damage from the coronavirus just isn’t available yet. Industrial production statistics released on Monday even suggested a rebound in January. — Bloomberg
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