EU Commission praises German stimulus plan as 'very positive'

By Jan Strupczewski

BRUSSELS (Reuters) - The European Commission praised Germany's 130 billion euro economic stimulus plan on Thursday, noting the EU's most populous country was finally boosting spending as the bloc's executive has been urging for years.

Chancellor Angela Merkel's ruling coalition agreed a bumper stimulus package on Wednesday that includes temporary tax cuts, handouts to families and investment in green transport technologies.

"It is very positive for at least two reasons," European Commissioner for Economic and Financial Affairs Paolo Gentiloni told an economic seminar at the Peterson Institute for International Economics.

"First, it is a strong and impressive stimulus and we have insisted over the last 5-6 years... countries with fiscal space, Germany first of all, to spend, to invest, to modernise, to use their fiscal space," Gentiloni said.

"Also, (the plan's) connection to the EU digital and green targets is, at first glance, very strong," he said.

Germany has run large budget surpluses for years and the Commission has long urged it to spend and invest more to improve its often ageing infrastructure and help boost growth rates across Europe with the spillover effects.

Focusing mainly on debt reduction, Berlin paid little heed to the Commission's calls until this year, when the coronavirus pandemic is expected to plunge the German economy into a deep recession. The Commission forecasts a 6.5% contraction in 2020.

The 130 billion package comes on top of a 750-billion-euro stimulus announced in March, raising concern that countries unable to spend such sums would be at a disadvantage when economic activity resumes.

Gentiloni said that was why the Commission proposed a 750 billion euro recovery fund with 500 billion euros of grants, to equalise recovery chances. The money is to be borrowed by the Commission against EU budget guarantees and paid back from new taxes assigned to the EU.

(Reporting by Jan Strupczewski; Editing by Toby Chopra)