Anglea Merkel’s €130-billion Covid bailout wins back electorate

Cordelia Friesendorf | Updated on July 12, 2020

From artificial intelligence and smart city solutions to pensions and student payouts, no socio-economic area was left behind by the stimulus package

The world looks with awe at Germany’s tackling of the coronavirus crisis. The Angela Merkel-led coalition government of Christian and Social Democrats, albeit late responders, were nimble crisis managers, shutting down socio-economic life, stocking up medical facilities and prioritising a hands-on approach towards saving lives. Notwithstanding infections of around 200,000 cases, Germany was efficient in limiting fatality below 10,000. Although the threat of a second wave hangs in the air like a Damocles sword, heavy economic losses have overshadowed much of the Covid management successes.

Amid conspiracy theories that pitch the mitigation efforts as a larger scheme to curb citizens’ rights, Finance Minister Olaf Scholz announced a fabulous bunch of payouts last week, targeting the bailout of big and small businesses. Titled ‘Fighting the corona pandemic, sustaining prosperity, strengthening future potential’, the economic stimulus package addresses 57 areas with a budget ceiling of €130 billion. These have been bundled into three broader areas: economic crisis management, developing potential segments, and finally, a commitment to honor EU duties and obligations.

Aimed to support poorer consumers, the package included a temporary reduction of the value added tax from 19 per cent to 16 per cent starting July 2020. With this measure, the German government foregoes €20 billion in tax income, but hopes to accelerate consumption in rural and urban areas.

And, €8 billion have been allotted to support families with children, of which one measure t is a one-time payout of €300 per child.

Trade tax losses of local governments’ amounting to €15 billion are to be financed by the central and state governments. Overall, they stand to benefit from an allocation €25 billion for infrastructure, socio-economic and energy sectors. For the first time, the local health sector has received funding attention. The programme, budgeted at €2 billion, specifies plans for expanding hospital capacities, installing digital infrastructure, telemedicine and robotic investments.

Clean energy

Climate change was prioritised with an allocation of more than €20 billion to strengthen e-mobility capacities for battery production, setting up of charging stations and incentives to shift small and medium enterprises from diesel to e-vehicles. Train, shipping and airway networks are to receive modernisation and clean-energies funding of more than €15 billion. The funding of onshore and offshore hydropower technology strategies were laid out in detail with ambitious goals of up to 5 GW capacity to be set up by 2030. For this purpose, Germany aims to cooperate with African countries that are rich in water resources to ensure efficient and sustainable power production.

From artificial intelligence to smart city solutions, pensions to student payouts, no socio-economic area was left behind by the stimulus package. Much of these measures were embraced and little criticised. Government actions have definitely restored faith of its citizens in its systems, thus rocketing Merkel’s performance ratings and suggesting an extension of her chancellorship.

But even before the Covid-19 pandemic, Germany was looking at a gradual economic recession. Industrial sectors such as shipping and logistics remain largely subsidised. Exports in April 2020 suffered losses of €75 billion representing a fall by 30 per cent as compared to the previous year, making it the largest loss since 1950. Experts forecast a growth of just around 3 per cent in 2021 on the condition that Covid-19 solutions are found to ensure normal growth circumstances. As compared to other developed and developing economies, Germany has been slow in adopting new technologies, putting it in a disadvantageous competitive position.

Ground realities of production and employment losses are reminding the populace that globalisation comprising goods, capital and labour mobility is what puts food on their table. Overall, the German government’s post-pandemic economic stimulus program has created a mood of reconciliation and holds promise for restoring solidarity in society.

The writer is Professor, International School of Management, Hamburg

Published on July 12, 2020

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