German Government's Ten-Point Program for Economic Support: Assessing the Impact

German government sends in the paramedics

The recent ‘Sick man of Europe’ debate seems to have woken up the German government. The government just announced a ten-point programme to support the economy. We are afraid that today’s announcement will not be enough and only be the beginning.

 

The summer break in Germany was anything but calm. Ongoing tensions between the government’s coalition partners and a growing concern that the economy was in for a longer period of stagnation had increased the sense of urgency to act. In a regular post-summer offsite, covering several topics, the government today agreed on a ten-point programme to support the economy. Not everything in this programme, however, is new. It is in fact a combination of old and new measures.

Here are the details:

• The main new element is a so-called Growth Opportunity Law, basically introducing tax allowances and tax incentives for investments in energy efficiency, research and development. It also includes new depreciation rules for investments in new building to support the real estate and construction sector. According to the government, this law should provide fiscal stimulus of around 7bn euro per year.
• Start-up capital of around 1bn euro.
• For the rest, the programmes includes the already pre-announced Climate and Transformation Fund with more than 200bn euro to finance the green transition. According to the government announcement, 100bn euro from this fund would be available next year. The programme also includes the usual announcements to reduce bureaucracy, invest in e-government, speed up public tenders and provide secure and affordable energy. It also has some shoulder-clapping elements, stressing the measures taken already so far.

Interesting is also what the programme doesn’t include. The currently heatedly discussed energy price cap for industry is not (yet) part of the programme.

 

 

Today's package is not a game-changer

In short, many of Germany’s current economic problems are homemade and cannot be solved with one magic fiscal bullet. Therefore, it is not only about the numbers. But… the additional fiscal stimulus announced today is basically 8bn euro (0.2% GDP), which is less than the recently announced earmarked 20bn euro for potential subsidies for the chip industry. Consequently, today’s package will not be the big game-changer for the German economy. Still, it shows that the government has finally become aware of the economy’s problems but it will probably require more and more concrete steps into the same direction to get the economy up to speed again. Paramedics are normally not trained to provide long-term therapy.