Germany’s $110 Billion Stimulus Talks Snag on Coalition Disputes

(Bloomberg) -- Chancellor Angela Merkel is struggling to resolve differences in her ruling coalition, delaying plans for a stimulus package worth as much as 100 billion euros ($110 billion) to reinvigorate Germany's faltering economy.

Disputes between her Christian Democratic-led bloc and the Social Democrats are bogging down negotiations, with no breakthrough in sight, according to people close to the discussions. Merkel reconvened her coalition on Wednesday after the parties failed to reach an agreement during nine hours of talks in Berlin on Tuesday.

After a brief period of unity at the height of the coronavirus crisis, party differences have resurfaced. The Social Democrats are pushing for higher spending and measures focusing on workers and families, while the CDU is keen to limit the amount of new debt and get businesses investing again.

One of the most controversial issues has been a program to boost car sales. The SPD wants to bolster demand for electric vehicles, while the CDU is seeking to include incentives for purchases of conventional cars as well. Other contentious aspects include debt relief for struggling municipalities and money for families.

‘Difficult Times'

Despite disputes over how to shore up Germany's economy, the parties agree that a package is needed to help consumers and businesses recover from a deep recession.

“I'm confident the coalition will secure a good and extensive package that lays the groundwork for the country to emerge from these difficult times,” Labor Minister Hubertus Heil, a Social Democrat, said on Wednesday. “The stimulus plan offers a major opportunity” to improve Germany's digital infrastructure, social equality and environmental impact.

Merkel's administration launched an initial shot of stimulus in March and has vowed to spend whatever it takes to get the country growing again. Including programs to guarantee company liquidity, the government has made more than 1.2 trillion euros available. Still, the efforts couldn't halt unemployment rising in May to the highest level since late 2015

The latest stimulus package could represent the last major spending initiative before elections late next year, meaning stakes for the ruling parties are high.

The Social Democrats have been in crisis ever since reluctantly agreeing to enter the coalition two years ago, while Merkel's conservative bloc faces its first national campaign in nearly two decades without the chancellor, who has said she will leave politics when her current term ends.

The CDU has been bolstered by Merkel's leadership in the pandemic, with support in the polls climbing to around 40% compared with the SPD's 15% -- roughly on par with the Greens.

Proposals to kick-start the ailing economy from the various ministries total over 60 pages and exceed 100 billion euros, according to a person with knowledge of the matter.

Weeks of stringent restrictions to contain the virus hurt demand for everything from Volkswagen cars to Adidas shoes and prompted the landmark 9 billion-euro bailout of Deutsche Lufthansa AG. The economy is expected to contract by more than 6% this year, which would be a more severe recession than during the financial crisis.

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