Germany discusses new economic stimulus plan

German Minister of Economy Robert Habeck has presented plans to stimulate the country’s economy by creating a fund to encourage investment and change the course of budget policy. It is reported by Reuters.

In the relevant document, the minister noted that creating a climate-neutral modern industrial future requires huge investments, both public and private, which are constrained by Germany’s restrictive budget policy.

In order to circumvent the so-called “debt brake,” Habeck proposes to introduce a multi-billion dollar “Deutschlandfonds” for infrastructure modernization and provide a “non-bureaucratic” investment premium of 10% for all companies.

The proposed fund will focus in particular on small and medium-sized enterprises, large corporations, and startups.

The investment premium will be offset against the company’s tax liabilities. In contrast to simply improving write-offs, companies that do not make any profit at all, such as newly established ones, will also receive a bonus.

This measure, according to the Minister’s proposal, should be limited to five years. He believes that more active economic growth should ensure only a moderate increase in public debt.

German Finance Minister Christian Lindner said that experts from his ministry will study Habeck’s proposal in detail to see if it is theoretically feasible. He also noted that the plan of the Minister of Economy calls for a fundamentally different economic policy for the country.

Lindner also emphasized that compliance with EU fiscal rules and European state aid rules is mandatory and must be verified before the proposal can be discussed.

According to German media reports, there are different positions among politicians and economists regarding Habeck’s proposal.

As GMK Center reported earlier, the German government expects the German economy to decreased by 0.2% this year. In 2023, the country’s GDP is expected to decreased by 0.3% y/y. At the end of September, leading economic institutes (Ifo, DIW, IWH, IfW and RWI) also downgraded their forecast for 2024. In their fall joint assessment, they expressed expectations that the German economy would shrink by 0.1% in the period.