16 January 2009

EZA 877 Report:

GERMANY – FISCAL PACKAGE

German fiscal package – not halting the downturn, but helping the recovery

On 13 Jan the German government parties agreed on a fiscal stimulus package of €50 bn until the end of 2010 (1% of GDP) – bringing the government in line with global efforts.
The package consists of three pillars, (1) tax relief (including health tax), (2) infrastructure spending and (3) loan guarantees for non-financial companies. Outright share purchases by the government (nationalisation) are explicitly rejected.
The package combines short term fiscal stimulus with long term structural reform, with the main impact to be expected late this year and in 2010.
Hence – in contrast to other legislatures – the thrust of the package is on bolstering an economic recovery, not alleviating the current downturn.
This puts the onus of economic stimulus on monetary policy, with further ECB rate cuts likely.
 

Asset conclusions: only moderately stimulatory, belated effect dashes hopes for stocks. Less bond negative than fiscal package of other legislatures.
 

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