The German government has signed off on taking on billions in new debt as part of an unprecedented package totaling 750 billion euros ($800 billion) to cushion the fallout from the coronavirus pandemic.
Chancellor Angela Merkel’s cabinet signed off on the spending plan in an emergency meeting on Monday, according to a government spokesperson. The German leader was forced to chair the gathering via video conference after quarantining herself at home on Sunday following earlier contact with a doctor who later tested positive, taking her out of the public eye just as she asserts herself into the crisis.
As the devastating implications of the disease become clear, Merkel’s ruling coalition is abandoning a long-standing commitment to balanced budgets and using emergency powers to suspend rules restricting borrowing that are enshrined in the constitution. The economy could shrink by at least 5% this year, according to an estimate by the finance ministry.
Germany will borrow 150 billion euros this year to finance measures to limit the impact of the outbreak. A rescue fund set up to buy stakes in companies and fund corporate loans could issue up to 200 billion euros in additional debt if needed. The ultimate size of the rescue fund’s borrowings depends on how many companies ask for government help, according to Deputy Finance Minister Joerg Kukies.
The 150 billion euros in new debt, equivalent to about 4.5% of gross domestic product, is part of a supplementary budget that will be presented to the lower house of parliament on Wednesday and could move on to Germany’s upper house on Friday.
A government initiative to lend firms about 500 billion euros via state-owned development bank KfW kicked off on Monday as aid programs start getting rolled out.
“It’s all about helping businesses quickly and unbureaucratically,” Economy Minister Peter Altmaier said in a statement. “A large part of that is providing liquidity.”