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Germany’s Scholz ready for ‘timely, targeted’ stimulus to counter coronavirus: sources

By Michael Nienaber

BERLIN (Reuters) – Finance Minister Olaf Scholz told lawmakers on Wednesday that Germany would have “all the strength” needed to counter the impact of the coronavirus if the epidemic plunged the world economy into a crisis, two participants told Reuters.

If such a worst case scenario should materialize, the government’s fiscal measures would be “timely, targeted, temporary”, Scholz said in a closed-door meeting of the Bundestag lower house of parliament’s finance committee, according to two participants.

“We’re prepared and ready to act decisively,” Scholz, a Social Democrat, was quoted as saying.

Germany has now reported 240 cases of the virus, which emerged in China late last year and is spreading around the world. It has killed nearly 3,200 people, though Germany has not reported a fatal case yet.

China is Germany’s biggest trading partner and its manufacturers depend on both Chinese demand and supply chains.

The epidemic is expected to weaken German domestic demand which could throw Europe’s largest economy into a recession. Gross domestic product already stagnated in the fourth quarter of last year as exports fell.

Economy Minister Peter Altmaier, a conservative, said on Tuesday the government was helping small- and mid-sized firms affected by the virus to bridge sudden liquidity problems and avoid lay-offs through existing labour market instruments.

Budget experts estimate that the government has the fiscal room for additional measures worth at least 17 billion euros ($18.9 billion). Some officials say that Berlin could even put together a stimulus package worth up to 50 billion euros, without ditching the government’s policy of no new debt.

Scholz has suggested increasing public investment in infrastructure by 12 billion euros until 2024. He has also proposed pulling forward the already agreed abolition of an income tax surcharge by six months, which would cost the federal government some 5 billion euros.

Chancellor Angela Merkel’s conservatives are split over whether Germany should launch a fiscal stimulus package now to counter any impact of the coronavirus on the economy.

Senior party members are expected to discuss potential measures at a coalition meeting on Sunday.

(Reporting by Michael Nienaber and Christian Kraemer; Editing by Toby Chopra)