Merkel Says Germany Needed Decisive Response to Virus Crisis

(Bloomberg) -- Chancellor Angela Merkel said Germany needed to act “courageously and decisively” after her coalition government cobbled together a sweeping 130 billion-euro ($145 billion) economic stimulus package.

“Luckily in the good times we have acted in a way that enables us to do this now,” Merkel told German broadcaster ARD in an interview on Thursday as she defended the government's unprecedented spending spree to rescue Europe's largest economy from the destruction wrought by the coronavirus pandemic.

Following an initial shot of stimulus in March, Merkel's administration vowed to spend whatever it takes to get the country growing again. Including programs to guarantee company liquidity, Germany has made more than 1.3 trillion euros available -- the most in the European Union by far.

The effort marks the clearest about-face for Merkel's ambition to maintain a balanced budget as Germany confronts its deepest economic recession since the aftermath of World War II. The headline figure for the most recent stimulus program exceeded economists' top-end expectations by 30%.

Germany agreed on a stimulus program late on Wednesday that aims to boost short-term consumer spending and entice businesses to invest again. In addition to an immediate jolt from a temporary reduction in value-added tax, coalition officials sought to safeguard Germany's future generations by allocating funds for 5G data networks, upgrading railways and doubling incentives for electric vehicles.

Tax Cut

The cut in value-added tax will only be valid until the end of 2020 and won't be extended after that, according to Merkel. “We would not be able to afford the financial losses in the long run,” she said.

By contrast, her coalition partner sees more room for further stimulus if needed. Rolf Muetzenich, head of the Social Democratic caucus in the lower house of parliament, said that the government may need to consider additional measures, including prolonging the tax cut, to ensure the economy gets back on its feet.

“You can't rule out anything in the current situation,” Muetzenich said Friday on Deutschlandfunk radio. “In the coming weeks, we'll know better which incentives had an impact and which support possibilities need to be improved.”

Fifth Term

Merkel, who has been leading Germany for 15 years, also ruled out a fifth term in office. “No, I'm not considering that. My word stands – and I've said it often enough,” she said.

Merkel's fourth term will end in the fall of next year and the race for her succession is wide open. Bavarian Premier Markus Soeder, Merkel rival Friedrich Merz, and Armin Laschet, who leads North Rhine-Westphalia, are currently seen as contenders from the conservative bloc.