German Upper House approves $1.7 trillion virus rescue package

BERLIN • The Upper House of Germany's Parliament approved the government's coronavirus rescue package yesterday, green-lighting almost €1.1 trillion (S$1.72 trillion) to shield Europe's largest economy from the impact of the pandemic.

Representatives of Germany's federal states rubber-stamped the unprecedented measures, which include €156 billion of new borrowing, support for business and the health system, as well as hundreds of billions in guarantees for bank loans to firms. The package, already passed by lawmakers in the Lower House earlier this week, is now expected to kick in from Wednesday.

Berlin will create an "economic stabilisation fund" offering €400 billion in guarantees for companies' debts, €100 billion for lending to or taking stakes in firms, and €100 billion in support for state-owned investment bank KfW.

With its firepower boosted by €357 billion, KfW will be able to guarantee some €822 billion in lending.

The federal government will also offer smaller firms up to €50 billion of handouts.

A total of €58.5 billion has been set aside for the health system, with €3.5 billion specifically for research and protective equipment, and the rest to be deployed as necessary.

The new borrowing marks a sea change in German economic policy, upending a financial crisis-era constitutional rule drastically limiting budget deficits.

The new package comes as almost one in five German companies sees itself at acute risk of insolvency due to the coronavirus crisis, a survey from the DIHK Chambers of Commerce showed.

"That should set all the alarm bells ringing - if we don't take decisive action, we'll see economic damage of historic proportions," DIHK president Eric Schweitzer said of the survey published yesterday.

The survey showed over a quarter of firms expect revenue declines of at least 50 per cent this year.

Last week, German Chancellor Angela Merkel called the pandemic the country's biggest challenge since World War II. In a worst-case scenario without government intervention, 88 per cent of the German population would swiftly have been infected, with a death toll close to 900,000, according to a study published on Thursday by an Imperial College London research team.

Quick and aggressive measures could cut the death toll to some 22,600, the researchers found.

European leaders, meanwhile, struggled to agree on a concrete strategy to contain the fallout from the pandemic, leaving key details to be hammered out in the weeks ahead.

Lawmakers on Thursday extended the deadline for agreeing on a comprehensive economic rescue package by two weeks amid a dispute between the ailing south and the fiscally conservative north.

Germany and the Netherlands blocked a call from Italy, Spain and France to issue joint debt to help fund a recovery.

All 27 national leaders of the European Union wrangled during a six-hour video conference over setting up a credit line worth some 2 per cent of their economic output from the European Stability Mechanism bailout fund of the 19-member single currency zone.

In the end, they tasked their finance ministers to work out the details in the next two weeks.

AGENCE FRANCE-PRESS, REUTERS, BLOOMBERG