Germany unveils €130bn coronavirus recovery package

Germany has unveiled a €130bn (£116.4bn) package of tax and spending measures designed to boost the country’s economic recovery from the coronavirus crisis.

Announcing measures to drag Europe’s largest economy out of recession as lockdown measures are removed, Angela Merkel’s government said it would use the package of sweeping temporary tax cuts and increase benefits to turbocharge its recovery.

Measures included a cut in VAT until the end of this year and substantial payments for every child in the country designed to help ordinary German families, alongside the launch of a €50bn fund to tackle global heating and finance new technologies. A state financial incentive to buy an electric car has been doubled to €6,000.

Against a backdrop of rising unemployment and with Germany already in a technical recession before Covid-19 struck, Merkel said a “bold response” was required to secure jobs and keep the economy running. Measures announced include:

• A temporary VAT cut from 19% to 16%, from 1 July until 31 December

• A €300 one-off payment for every child in the country

• A €50bn fund to address climate change, innovation and digital technology›

• A €25bn loan support programme for small firms that have seen their sales drop by more than 60% for June to August. This could be a particular boost for bars, restaurants, hotels and other hospitality businesses.

• €10bn for municipalities struggling with lower tax receipts, with public spending on infrastructure and housing

Up until now, countries around the world had largely announced emergency financial support to cushion the economic blow from the coronavirus outbreak rather than jump-start a recovery. Germany’s package of measures comes on top of a €750bn rescue package agreed in March. It included loan guarantees and direct spending measures such as furlough wage subsidies.

Germany had typically taken a conservative approach to tax and spending policy in recent years, despite repeated calls to loosen the purse strings to boost the economy as growth faltered.

Merkel’s government came under pressure earlier this year to spend after overseeing a record €13.5bn budget surplus last year while the country’s economy slowed.

Berlin’s latest plans, however, come as more countries lift lockdown controls and attempt to reboot their economies as the world slides into its deepest recession since the Great Depression of the 1930s.

The British chancellor, Rishi Sunak, is understood to be drawing up plans for a summer financial statement to revitalise the UK economy, which is likely to focus on infrastructure spending and job creation schemes.

Three former British chancellors told Sunak on Wednesday to prepare for 1980s levels of unemployment across the country as the coronavirus crash causes widespread job losses.

Alistair Darling, Labour’s chancellor during the 2008 financial crisis, said Sunak should also consider temporary VAT cuts similar to those used more than a decade ago during the financial crisis.

The former chancellors also suggested more funding for green growth, job support and retraining for the newly unemployed would also be vital for Britain’s recovery.