Germany to unveil major stimulus as virus death toll rises throughout Europe

BERLIN, GERMANY - FEBRUARY 07: German Chancellor Angela Merkel in the course of a special faction meeting, on February 07, 2018 in Berlin, Germany.

Florian Gaertner

Germany is about to unveil new measures to mitigate the economic impact of the coronavirus, in what analysts are describing as a "game changer" for a country that's the leader of fiscal prudency.  

The fiscal stimulus comes at a time when Italy is tightening its lockdown after the death toll from the coronavirus surpassed 5,000, and Spain decided to extend its emergency state until April 11. Europe has been the epicenter of the coronavirus since mid-March, with more new confirmed cases than anywhere else in the world.

"The German plan is another game-changer," Frederik Ducrozet, senior economist at Pictet Wealth Management, said in an email over the weekend. 

Germany is planning to increase borrowing by as much as 150 billion euros ($160 billion) this year as well as to pass a 156 billion euro ($167 billion) supplementary budget. The government led by Chancellor Angela Merkel is also setting up a 500-billion-euro bailout fund to take stakes in critical industries, according to various media reports. 

At a government meeting on Monday, Berlin is expected to halt its debt brake rule – a law that basically prohibits Germany from presenting structural deficits. 

"The government measures to limit the outbreak of Covid-19 have put the (German) economy into an induced coma," Carsten Brzeski, chief economist at ING Germany, said Monday via email. 

"With a fiscal big bang, the government tries its own 'whatever it takes' to keep the patient alive," he added.

As of Monday morning, Germany had 24,873 confirmed cases of coronavirus and 94 deaths, according to data from Johns Hopkins University.

Merkel, who has been in power since 2005, is in quarantine since the weekend after being in contact with her doctor who was later diagnosed with coronavirus.

Italy tightens lockdown amid the 'most difficult crisis'

Meanwhile, Italy remains at grips with the deadly virus. As of Monday morning, there had been 5,476 fatalities from the coronavirus.

The Italian government ordered over the weekend the closure of all industrial production and almost all private and public offices. This means that only what the executive considers to be "essential products" will be developed.

"This is the most difficult crisis that the country has faces since World War II," Prime Minister Giuseppe Conte said Saturday.

Spain is also stepping up its measures in response to the virus. The government is to extend the state of emergency until April 11, as the death toll keeps rising.

Spain has the fourth highest number of confirmed coronavirus cases in the world, after China, Italy and the U.S. As of Monday morning, there were 28,768 infections and 1,772 deaths.

Prime Minister Pedro Sanchez called upon the European institutions to launch a massive public investment platform throughout the 27 nations. During a speech Sunday, Sanchez also supported the idea of issuing common European securities to tackle the economic impact of the coronavirus. 

The virus has brought all the major economies to a halt, with people confined at home, schools closed, and all non-essential travel suspended.

European finance ministers will discuss their fiscal response to the coronavirus from 2 p.m. London time.

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