Germany divided over new coronavirus stimulus package

Germany divided over new coronavirus stimulus package
Luisa Neubauer of Fridays for Future takes part in a demo near Brandenburg Gate in Berlin while political leaders discuss the economic stimulus package. Photo: DPA
German ministers met Tuesday to thrash out an economic stimulus package to speed recovery from the coronavirus shutdown, with the vital auto industry and possible subsidies for it a key sticking point.

Much of the wrangling is along familiar lines – Chancellor Angela Merkel's conservatives favour tax cuts and other pro-business measures, while their centre-left SPD junior coalition partners prefer one-off payouts to families and support for struggling local governments.

But calls for massive auto subsidies have cut across party lines, setting regions and other industrial sectors against one another as they all seek cash from the government.

The subsidy plans for an industry that employs around 800,000 people have also energised those who say the coronavirus crisis offers a chance to take the green option instead and really fight climate change.

READ ALSO: Which German industries have been hardest hit by the coronavirus crisis

A demonstration took place in front of the chancellery on Tuesday.

Protests have also been called across the country by youth environmental movement “Fridays for Future,” after thousands turned up last week in 27 cities against any  handouts to carmakers.

“A bonus for car purchases could well be the most controversial point at the coalition talks today,” news site Spiegel Online commented.

Overall, the entire government direct aid programme could total up to €80 billion ($89 billion), weekly Bild am Sonntag reported Sunday.

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This money will come on top of a package comprising loan guarantees, subsidies and a beefed-up shorter-hours programme worth more than one trillion euros which was decided as the pandemic broke over Germany in March.

“We will decide a support programme that helps the economy to find its feet and grow again,” Merkel said in a weekly video podcast Saturday, urging “a boost to innovation and sustainable growth”.

READ ALSO: Germany to give stricken small firms up to €50,000 a month

Green eyes at France

French President Emmanuel Macron's announcement last week of eight billion euros to help carmakers transition towards electric vehicles stoked jealousy across the border.

“It can't be that France is spending eight billion euros supporting the car industry, while we spend nine billion on (airline group) Lufthansa – and not for the keystone of our economy,” conservative heavyweight Markus Söder told weekly Welt am Sonntag.

The Bavarian premier's state hosts major carmakers BMW and Audi, while SPD-run Lower Saxony state is similarly fighting for support for Volkswagen.

But some politicians on both sides of the Berlin coalition are sceptical.

“I've made no secret that I'm very sceptical of purchase or trade-in bonuses” for cars, conservative parliamentary leader Ralph Brinkhaus told the RND newspaper group Saturday.

Meanwhile SPD chief Norbert Walter-Borjans has come out against subsidising traditional fossil-fuel driven engines.

The influential Ifo economic institute on Monday said that while past cash-for-clunkers schemes “enlivened sales for a short time… the bottom line is that there is no evidence in most studies that more cars were sold” overall.

“More for the auto industry could quickly mean less for other sectors” by redirecting consumer spending, Ifo expert Felix Roesel added.

READ ALSO: Germany plans €40 billion 'rescue package' for freelancers and small businesses

Carl Martin Welcker, president of the VDMA machine-tool makers' federation – another key industry – warned a car bonus would “discriminate” against other sectors.

Tax cuts or handouts?

Many in both the conservative and centre-left ranks agree Berlin should bring forward the abolition of a “solidarity surcharge” introduced to pay the costs of German reunification after 1990 – although Brinkhaus says it is not possible “for purely technical reasons”.

Other suggestions offer less chance for consensus.

SPD Finance Minister Olaf Scholz has revived a pre-pandemic idea for Berlin to take over the debts of struggling local governments, so far rejected by conservatives.

Merkel's CDU party is also lukewarm on mooted one-off 300-euro payments to families with children or increasing the level of unemployment benefit payouts.

They prefer ideas such as forgoing Berlin's share of local business taxes or investing in digitisation of government bureaucracy.

Conservative Transport Minister Andreas Scheuer and Research Minister Anja Karliczek say cash should be pumped into developing new drive technologies for cars, like hydrogen generated from green electricity.

“We want to be world champions in green hydrogen. We want to research, develop and produce in Germany the technologies that set global standards and have potential as new export hits,” Karliczek told the Funke newspaper group.

By Tom Barfield

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