May 21, 2019 / 11:15 AM / a month ago

Germany to boost private R&D with 1.25 billion euros in incentives

BERLIN (Reuters) - Germany will pass a draft law on Wednesday to support corporate research and development with annual incentives of 1.25 billion euros ($1.39 billion), officials said on Tuesday, in an effort to boost cutting-edge technologies in Europe’s largest economy.

Germany’s private sector, which is highly dependent on the large, export-oriented car industry, is at risk of losing ground to more innovative rivals from the United States and China in areas such as electric mobility and autonomous driving.

The Federation of German Industry (BDI) and the International Monetary Fund (IMF) have urged Berlin to provide a better framework and more incentives for corporate research and development as a way to guarantee prosperity and jobs in the next decade.

The draft law from Finance Minister Olaf Scholz envisages incentives worth 625 million euros from the federal government and a further 625 million euros from the 16 regional state governments, according to the draft law seen by Reuters.

Companies doing basic research or industrial development can apply for a bonus of up to 500,000 euros per year from 2020, with the first payouts planned for 2021 and with incentives not limited to small- and medium-sized firms as originally planned.

The law needs to be passed by both the Bundestag lower house and the Bundesrat upper house which represents the interests of the 16 regional governments in Germany’s federal republic.

Chancellor Angela Merkel’s coalition parties do not have a majority in the Bundesrat which means they need support from opposition parties such as the ecologist Greens, the business-friendly Free Democrats or the anti-capitalist The Left.

Home to big carmakers such as Volkswagen AG and Daimler, Germany is also facing the threat of higher U.S. tariffs after U.S. President Donald Trump last week declared that some imported vehicles pose a national security threat.

But he delayed a decision for as long as six months on whether to impose higher tariffs to allow for more time for trade talks with the European Union.

The IMF and European Commission have long urged Germany to boost domestic demand by lifting wages and investment to reduce what they call global economic imbalances. Since his election, Trump has also repeatedly criticized Germany’s export strength and its large current account surplus.

Reporting by Michael Nienaber; Editing by Andrew Cawthorne

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