The Bundestag has introduced unprecedented measures in an attempt to mitigate the coronavirus crisis. Companies, the self-employed, and Hartz IV recipients are the primary beneficiaries of the package for which parliament even revoked Germany’s constitutional debt limit.
What Do Merkel’s New Measures Include?
The Bundestag has approved a supplementary budget of €156 billion and a rescue package with a volume of €600 billion. Moreover, politicians also suspended the debt limit and thus paved the way for the government to raise new debts to deal with the pandemic.
With the €600 billion protective shield, Germany seeks to support more substantial companies. It allows the government to provide guarantees on a large scale and, if necessary, nationalize relevant companies in whole or in part during the crisis. Companies with high sales or more than 250 employees can benefit from these measures. Smaller companies should only slip under the protective shield in individual cases.
For smaller firms and the self-employed, an unlimited loan program has been launched through the state’s development bank. Moreover, these companies will also be allowed to pay their taxes later. Disbursed across the federal states, small companies and self-employed individuals who are barely getting loans can also receive direct financial injections of €9,000 to €15,000 for three months, but this depends greatly upon the size of the company. Insolvency laws have also been relaxed so that companies do not face rapid bankruptcy.
The Government will finance the additional costs that these programs generate by taking on new debt. Accordingly, the supplementary budget of €156 billion was approved, which is €100 billion more than the constitutional debt allows for.
Will the Package Work?
The package is also designed to help curb unemployment. Here Berlin is utilizing the same approach it did during the 2008/2009 financial crisis: short-time working. The Federal Employment Agency will pay 60 percent of people’s wages and then cover 67 percent of people with children during this time, while the companies are then also reimbursed for social contributions. Overall, the government is anticipating 2.15 million in short-term working benefits, which would cost €10.05 billion.
The government also anticipates up to 1.2 million additional basic social security recipients in the Hartz IV system – and thus an additional €10 billion in costs, which is also covered under the measures taken now.
However, the package includes further steps. Politicians anticipated this epidemic would have a national impact and passed a law that therefore gives the government additional competencies for a limited time so that they can react to crises more quickly.
Equally important, hospitals are going to receive additional support. Here, Berlin will pay for the expansion of intensive care beds needed for seriously ill patients. The hospitals are to receive €560 per day for each bed that is now kept free. For each new intensive care unit with artificial ventilation, there should be a €50,000 bonus, while there will be surcharges for additional costs for protective equipment. Also, the number of 28,000 intensive care beds to date is set to be doubled.
Germany’s Bundestag Has Shown it Means Business
The rationale behind these measures is that the clinics ought to initially suspend operations and new admissions that can be scheduled. The latter is intended to free up capacities in order to be prepared for patients with more severe courses. Berlin calculates an additional expenditure of €2.8 billion will be required.
The Bundestag has shown an urgently needed willingness to put its full weight behind the crisis. Fortunately, Germany has the resources to facilitate these decisions and arguably the capabilities to further expand aid measures if needed.