"This stimulus package is essential," declared Federal Finance Minister Peer Steinbrück unequivocally in the German Bundestag. The new Federal Economics Minister Karl-Theodor zu Guttenberg added that the package gives Germany a strategy that goes well beyond the immediate year ahead.
At this stage, however, this is not possible without borrowing, both ministers explained. It remains the goal of the government to reduce the country's debt again as soon as the economy picks up.
The second recovery package: getting the focus right
Now it is important to give the recovery measures a chance to take effect, said Peer Steinbrück. He believes that the second recovery package gets "the focus right". It embraces five main measures:
· Promoting investments to modernise the country
· Tax cuts
· Promoting the automobile industry
· A labour market policy to prevent job losses
· Putting in place a constitutional brake on new government borrowing.
One central point is securing business loans. Along with the first recovery package, the federal and state governments are making available 80 billion euros to jump start the economy. The first positive impacts can already be seen. "The incentive payment to scrap old cars and replace them with newer, more environmentally friendly models has got off to a great start and is proving to be an extremely important measure," pointed out Peer Steinbrück.
The response at local government level too is positive. The federal government has earmarked more than 10 billion euros for local-level investments.
Stabilising the financial market
It is, however, also important to take into account the situation of banks. Peer Steinbrück announced, "We will be presenting our draft Financial Market Stabilisation Law within the next few weeks."
The focus will be on how banks handle "toxic debts". The Federal Finance Minister absolutely rejects the idea of a central "bad bank" which would buy these.
Making the most of opportunities
"Never before has there been such a swift and rigorous response to a crisis," declared the Economics Minister. Germany must now make the most of the opportunities offered by the package to give the people new courage. "This country needs courage and confidence," he underlined.
At the same time he warned of the dangers of excessive state assistance. This can hamper the market and its self-healing properties, and he continued, we must not lose sight of the generations to come. "This is why it is right to anchor a brake on new government borrowing in the Basic Law, or constitution," he declared.
Along with the state governments, the federal government aims to make this change to the constitution before the next elections. It is to make possible a structural deficit of no more than 0.5 percent of the country's gross domestic product (GDP) and will provide for strict regulations that will apply in exceptional situations such as natural disasters or global financial crises.
When the next upswing comes, it will be vital to pay off the debts we are now running up, and to strike out once again along the path that will lead to a balanced budget.
Reducing burdens ...
Short-time work rather than job losses is the principle under which businesses are to be helped keep their skilled workers. The federal government will pay half of the social security contributions that businesses would otherwise have to shoulder alone for workers on short time.
For 2009 and 2010 an additional sum of over 2 billion euros has been made available for further training and upgrading for workers on short time, but also for young workers with no professional qualifications and for young people who have been seeking a place as a trainee for a long time. Employment agencies are to be granted 5,000 new staff members to help them cope with this and with the additional placement and supervisory workload.
Income tax is to be cut, especially for the lower income brackets. The wage level at which income tax becomes payable is to be raised by 170 euros, as of 1 January 2009 and by another 170 euros as of 1 January 2010. The progressive income tax brackets are to be modified, to try to overcome the problem of progression, which often means that after tax, workers find that little is left of wage increases.
State health insurance contributions are to be reduced to 14.9 percent as of 1 July 2009.
Families are to be granted a one-off bonus of 100 euros for every child. Recipients of the second stage of unemployment benefit will receive a higher allowance for children as of July.
Safety net for businesses: Healthy large-scale businesses, which currently have limited or no access to credit because of the reticence of the banks, will be granted government guarantees and will be able to borrow money from the federally owned KfW-Bank.
For 2009 and 2010 an additional sum of over 2 billion euros has been made available for further training and upgrading for workers on short time, but also for young workers with no professional qualifications and for young people who have been seeking a place as a trainee for a long time. Employment agencies are to be granted 5,000 new staff members to help them cope with this and with the additional placement and supervisory workload.
Income tax is to be cut, especially for the lower income brackets. The wage level at which income tax becomes payable is to be raised by 170 euros, as of 1 January 2009 and by another 170 euros as of 1 January 2010. The progressive income tax brackets are to be modified, to try to overcome the problem of progression, which often means that after tax, workers find that little is left of wage increases.
State health insurance contributions are to be reduced to 14.9 percent as of 1 July 2009.
Families are to be granted a one-off bonus of 100 euros for every child. Recipients of the second stage of unemployment benefit will receive a higher allowance for children as of July.
Safety net for businesses: Healthy large-scale businesses, which currently have limited or no access to credit because of the reticence of the banks, will be granted government guarantees and will be able to borrow money from the federally owned KfW-Bank.
... and investing
To improve nurseries and schools, roads and hospitals the government will be providing about 14 billion euros. Four billion euros will be earmarked for federal investments in projects such as motorways, while the other 10 billion euros are to finance a municipal investment programme. The federal states are to contribute another 3.3 billion euros. At least half of the total of over 17 billion euros is to be spent before the end of this year. To this end, regulations governing the placing of public orders are to be simplified on a temporary basis. These investments are to focus on the education sector, with 65 percent of the total already earmarked. "We are well on the way to becoming a Federal Republic of Education,” declared the Chancellor.
The planned investment has been designed to foster climate protection and energy efficiency.
At this time of crisis, many businesses do not have the resources they need for research and development, although R & D is more important than ever before. In order to bridge this gap, the federal government will be making available 450 million euros a year in 2009 and 2010 to medium-sized enterprises to help finance research projects.
Over the next two years, 500 million euros have been earmarked to provide assistance and loans designed to encourage the development of the vehicle engines for the future using fuel cells and hydrogen technology.
Broad band is today at least as important as good road connections for economic growth. The second recovery package thus plans to ensure nationwide broad band coverage by the end of 2010. Three quarters of all households are to have a rapid Internet connection by 2014, with one hundred percent coverage to be achieved by 2018, using both cable and wireless technology.
The German automobile industry is a cluster of innovation and high-tech unrivalled anywhere in the world. To help the branch back onto its feet, the demand for vehicles, which has dropped dramatically in the last few months, is to be revived. Anyone scrapping a vehicle that is at least nine years old, and buying a new environmentally-friendly vehicle, will receive an environmental bonus of 2,500 euros. This offer will apply until the end of this year. It is open to all owners of older vehicles who have had the vehicle for more than one year.
As of July 2009, vehicle tax is to be calculated on the basis of emissions caused. For older vehicles, CO2-based vehicle tax is to be introduced gradually as of 2013.
Although the level of national debt will rise for an interim period as a result of all these measures, the government is sticking to its goal of sound long-term financial policy. Along with the individual federal states it aims to enshrine a limit on borrowing in the Basic Law, or constitution, before the next elections.
Tackling the root causes of the crisis with new structures
"Thanks to the reforms of the last five years, our country is in a better state to cope than many others,” Vice-Chancellor Frank-Walter Steinmeier pointed out. Germany is well prepared to face the crisis. Nevertheless, an exceptional situation calls for exceptional measures, said the Chancellor.
To ensure that this international financial crisis does not repeat itself, Angela Merkel aims to push for a new global financial market constitution at the G20 summit meeting scheduled for April. As she put it recently, the goal must be to establish "a social market economy on a global scale”.
