What is the definition of unlimited government
How the federal government wants to support the economy : Scholz 'personal "Whatever it takes" moment
The growth was already weak. The industrial sector of the German economy has been in recession mode for months. Services and the construction industry still ensured mini-growth, but recently there was already stagnation. Because in the fourth quarter of 2019, according to the economic researcher at Deutsche Bank on Friday, private consumption also declined - so far, a pillar of the economy. And then came the corona crisis.
Economic researchers agree that it will push the entire German economy into recession. Federal Finance Minister Olaf Scholz (SPD) did not want to use the word on Friday when the federal government presented the countermeasures, but he spoke of a "very difficult situation" that would also lead to tax losses. The support program for the economy will be “tens of billions”. It is therefore “not implausible” that the federal government needs additional money. The fact that the black zero, i.e. a budget without new debt, can no longer be maintained has meanwhile become a certainty in the coalition - also in the Union.
Economy is slipping into recession
According to the forecasts, the second quarter in particular will be very weak because the consequences of the corona crisis will then be concentrated. Chancellor Angela Merkel's call to reduce social contacts as much as possible will help - if you want to contain the spread of the virus, you have to accept that the economy will suffer. The Deutsche Bank researchers are assuming a 0.2 percent decline in economic growth for 2020 as a whole.
Scholz and Minister of Economic Affairs Peter Altmaier (CDU) have put together a package that is primarily intended to signal one thing: the government is prepared for something and does not even want to embark on a piecemeal approach. The evening before, after the Chancellor’s meeting with the Prime Minister, it had already become clear that the coalition saw a “Draghi moment” coming: they want to prevent any further uncertainty in the markets, in the companies and in the population, including speculative exaggerations on the exchanges by making it clear to provide unlimited help.
Bazooka - Scholz does the Draghi
It was the former ECB boss Mario Draghi who in 2012, with the phrase “whatever it takes”, summed up the willingness to use all the possibilities of a central bank in the euro crisis. He has fetched the bazooka - that is, the bazooka - from the arsenal, it has been popular ever since. Scholz also used the word on Friday. To this day, the ECB has been busy containing the aftermath of the double crisis after 2008.
The most important point in the package from Scholz and Altmaier is the promise of unlimited credit support in order to prevent a liquidity crisis in the manufacturing and service sectors - and also to prevent a new banking crisis if large numbers of loans can no longer be serviced. The existing programs for liquidity support will be expanded to provide companies in difficulty with cheap bridging loans. This is done through their commercial banks, but is, as usual, flanked by loan support from the Reconstruction Loan Corporation (KfW). The instruments previously intended for small and medium-sized companies are also to be made available to larger companies with a turnover of up to two billion euros; previously the upper limit was 500 million euros.
Credit lines are increased
In the existing program for large companies, the turnover limit rises to five billion euros. The risk assumption by KfW will also be increased to up to 80 percent of the loan volume. As is already the case today, there is also a case-by-case examination. However, Scholz and Altmaier also made it clear that state participation in companies that get into major difficulties cannot be ruled out.
KfW is being provided with additional funds. The guarantee framework in the federal budget will be "promptly" increased by up to 93 billion euros to more than 550 billion euros. Guarantee programs are being expanded, the regional guarantee banks, which are particularly important for medium-sized companies, are supported by a higher share of risk from the federal government. Scholz and Altmaier emphasized that the aid package was coordinated with the EU - it does not conflict with the aid restrictions that apply to all EU countries.
Tax prepayments can be capped
It was already apparent that there would be tax deferrals. In order to secure the liquidity of companies of all sizes, the tax administrations should defer taxes "if the collection would represent a considerable hardship"; as it says in the action paper by Altmaier and Scholz. There are expressly no strict requirements to be made. Tax prepayments can also be reduced, "quickly and easily", if it is clear that the income of taxpayers will be lower because of the Corona crisis. In order to avoid bankruptcies, the tax authorities should also refrain from seizures and late payment penalties in affected companies until the end of the year. This is not a tax waiver by the state, deferred payments have to be made up when the crisis is over - economists expect that the economic crisis will not drag on as long as the one after the financial crisis after 2008 due to the corona epidemic.
"We have the financial strength"
The coalition had already decided last Monday that an expanded short-time work allowance, as it was in the financial crisis after 2008, would be used to help companies (and thus above all the workers in shaky companies and industries) - the Bundestag and Bundesrat brought the legislation on Friday the stage.
Scholz emphasized: “We have the financial strength to cope with this crisis. There is enough money there, and we are using it. ”The German share index (Dax), which slumped by more than twelve percent on Thursday, had already moved up about seven percent before the press conference of the two ministers. After the appearance of Altmaier and Scholz, things went up a bit - the big rash did not materialize, later things went down again slightly
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