Interview for Bruegel’s newsletter
How significant is the new German fiscal package?
€130 billion over 18 months is a very significant package, given that the German federal budget stands at around €350 billion a year. It’s roughly 2.5% discretionary stimulus, on top of the automatic stabilisers. It should also have a positive effect for neighbouring countries via trade, and therefore contribute to stabilizing the EU economy.
How does it compare to the response in the rest of Europe?
Germany has already taken the strongest measures in the Union (see Bruegel’s ongoing comparison of Europe’s fiscal responses here). But until now, like in the rest of Europe, they were related to the “bridging” period of the lockdown. Decision on stimulus and recovery phase are only starting.
Any surprises in this package?
The surprise is the lack of obvious scrappage scheme for combustion engine cars. Beyond the decrease in the general VAT rate, car-related policies aim to direct the sector towards new technologies such as electric cars. This example shows how elements of the package aim at steering Germany towards a ‘new economy’.