Germany goes all in to tackle economic fallout of coronavirus

VIRUS CORONA - BERLIN. Germany on Friday promised half a trillion euros in guarantees for business - and more if needed - in a four-point plan to tackle the economic impact of the coronavirus epidemic, winning a thumbs up from economists.

"We have the financial strength to overcome this crisis," said Finance Minister Olaf Scholz. "We're not building up arms slowly. We're putting all our weapons on the table."

The German economy, Europe's largest, stagnated in the fourth quarter of last year and the coronavirus fallout has raised the risk that it will tip into recession in the first half of this year.

Economy Minister Peter Altmaier said he hoped the coronavirus outbreak would only cause a blip in growth rather than the crisis of the decade.

Under their plan, Scholz and Altmaier lowered the bar for firms to qualify for a shortened-hours work facility, made it easier for them to defer their taxes, offered guarantees to businesses, and pledged enhanced EU cooperation.

"Around half a trillion euros is available," Altmaier said of the guarantees available from the KfW state development bank. "And that is the start."

"We have promised that this (plan) should not fail due to a lack of money, or a lack of political will," he told a news conference with Scholz, who added: "There is no upper limit to the amount of credit the KfW can grant".

Scholz also dropped the government's laser-like focus on budget balance: "One shouldn't run after savings in a crisis," he said.

Germany, which has until now pursued a self-imposed policy pledge of not taking on new debt, has come under pressure from neighbouring France to raise public spending.

Chancellor Angela Merkel already signalled an end, if needed, to the fiscal rectitude at a news conference on Thursday, when she said Germany's debt brake "provides for exceptions in extraordinary situations".

Under the German debt brake rule, the federal government can take on new debt of up to 0.35% of economic output.

"We are in a situation that is unusual in every respect and I would say more unusual than at the time of the banking crisis," Merkel said on Thursday.

Economists welcomed Friday's plan from Scholz and Altmaier.

"This is a 'whatever it takes' from the federal government," said DekaBank economist Ulrich Kater, referring to former European Central Bank President Mario Draghi's pledge at the height of the euro zone crisis in 2012 to save the euro.

"This is exactly the news that can break the downward spiral in expectations," Kater added.

Scholz, who would not be drawn when asked whether the government was considering banning short-selling by financial market traders, said he could not rule out the government taking stakes in companies due to the coronavirus outbreak.

But Altmaier, when asked if he saw a need for the government to temporarily take stakes in strategic companies like Deutsche Telekom or Siemens, said: "I do not see such a need at the moment."