BERLIN (Reuters) - Chancellor Angela Merkel’s government has agreed a stimulus package worth over 750 billion euros ($810 billion) to mitigate the impact of the coronavirus outbreak, with the government aiming to take on new debt for the first time since 2013.
The lower house of parliament on Wednesday passed the measures, comprising a debt-financed supplementary budget of 156 billion euros and a stabilisation fund worth 600 billion euros for loans to struggling businesses and direct stakes in companies.
Below are some facts about the package:
THE EXTRA BUDGET
The supplementary budget will be completely financed by net new borrowing. The government has asked parliament to suspend the debt brake in Germany’s constitution, using an exit clause for emergencies.
Finance Minister Olaf Scholz needs the extra money to finance additional spending of 122.5 billion euros and close an expected gap in tax revenues of 33.5 billion euros.
The extra budget includes a 50 billion euro programme to help small businesses and the self-employed threatened with bankruptcy, with direct payments of up to 15,000 euros ($16,225).
The government is also making available a further 7.7 billion euros for social security protection for the self-employed and 3.5 billion euros for medical protection equipment and the development of a coronavirus vaccine.
The extra budget includes 55 billion euros for yet unknown fiscal measures to fight the pandemic.
THE STABILISATION FUND
The stabilisation fund will offer 400 billion euros in loan guarantees to secure corporate debt at risk of defaulting.
It also includes 100 billion euros in credit to public sector development bank KfW for loans to struggling businesses and a further 100 billion euros to take direct equity stakes in companies as a way to prevent bankruptcy and foreign takeovers.
The government will give the KfW bank debt authorisation for both measures, which means overall new borrowing could rise to up to 356 billion euros, depending on how much companies access the new facilities.
The combined sum of new debt represents roughly 10% of Germany’s gross domestic product.
The government has also lowered the bar for companies to apply for state aid under short-hours working, aimed at protecting workers against unemployment.
The labour ministry expects this to cost up to 10 billion euros this year. The Federal Labour Office has financial reserves of 26 billion euros for such measures.
In addition, companies can also apply for the KfW state development bank’s programme to support the economy, a credit scheme presented earlier this month.
The funds in this programme are unlimited, but firms will have to pay back the money, provided they survive the crisis.
The government has also increased its own guarantees by 357 billion euros to 822 billion euros.
In all, the extra budget, stabilisation fund and other measures are providing direct aid and additional guarantees worth more than 1.1 trillion euros.
($1 = 0.9245 euros)
Reporting by Michael Nienaber, editing by John Stonestreet
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