Germany's Unprecedented Fiscal Expansion in Response to COVID-19: "Jobs and Businesses Must Not Be Threatened"

Total Scale of 750 Billion Euros

[Image source=Yonhap News]

[Asia Economy Reporter Hyunju Lee] Germany is undertaking an unprecedented fiscal expansion to respond to the economic shock caused by the novel coronavirus infection (COVID-19). This is a rare move considering that Germany has been extremely reluctant to run deficit budgets since experiencing a fiscal crisis in the 1990s.

According to major foreign media on the 21st, the German government is preparing a supplementary budget worth 150 billion euros (approximately 200.5 trillion won). The German government plans to process the supplementary budget through a cabinet meeting on the 23rd, and both the Federal Diet and the Bundesrat will begin deliberations on the supplementary budget bill. Additionally, Germany announced plans to create an Economic Stabilization Fund (WFS) worth 100 billion euros to directly acquire shares in companies facing management crises. Germany will inject 100 billion euros into the KfW (Kreditanstalt f?r Wiederaufbau) to support companies and provide bank loan guarantees worth 400 billion euros for companies affected by COVID-19.

The total amounts to 750 billion euros. Such a decisive fiscal expansion by Germany is very rare. Germany strictly maintains fiscal balance to the extent that it prohibits fiscal deficits by state governments in principle and has enshrined a debt brake rule in its constitution, which bans new debt exceeding 0.35% of the gross domestic product (GDP). Germany is known to be extremely averse to national debt due to its experience of falling into a fiscal crisis in the mid-1990s caused by massive reunification costs after unification.

Finance Minister Olaf Scholz said at a briefing that day, "Our jobs and companies must not be threatened," adding, "It is important to send a strong and clear signal from the start."

Meanwhile, France has decided to guarantee bank loans worth up to 300 billion euros (approximately 401 trillion won) to support corporate activities.

This content was produced with the assistance of AI translation services.