Merkel’s Coalition at Odds Over Next Stage of Crisis Response

(Bloomberg) —

Germany’s ruling coalition is at odds over how to tackle the next stage of the coronavirus crisis, after it won widespread praise for its decisive response to the pandemic’s economic fallout.

As coalition leaders meet Wednesday evening to discuss the next steps of their crisis management, Chancellor Angela Merkel’s Christian Democrat-led bloc is pushing back against immediate new economic stimulus measures demanded by its Social Democratic partner.

The debate risks reopening old wounds after Germany’s grand coalition — which seemed to be coming to an end only a few months ago — closed its ranks in the fight against the coronavirus. The government has been fast to implement an unprecedented 1.2 trillion-euro ($1.3 trillion) rescue package in recent weeks to provide businesses with liquidity.

Finance Minister Olaf Scholz and Economy Minister Peter Altmaier have also announced they are considering a stimulus package to kickstart the economy once the pandemic has been contained.

But Merkel’s coalition partners are haggling over how and when to take those next steps. While the Social Democrats plan to move ahead with additional stimulus measures soon, Merkel’s CDU/CSU bloc prefers to wait for more clarity on the full economic impact of the virus.

“We have to be careful not to introduce each week a new measure followed by another measure the next week,” Merkel said on Monday.

Pet Project

Among other things, the Social Democrats demand an increase in state wage support for employees who have been forced to cut back working hours, Carsten Schneider, the SPD’s deputy parliamentary chairman, said on Wednesday.

Senior Christian Democrats have rejected this. Some in the CDU have also upset their coalition partner with a proposal to reverse a decision to introduce minimum pensions — a pet-project for the Social Democrats that was previously agreed upon after a long and heated debate.

The renewed discord comes just as Europe’s biggest economy is headed for a tough road ahead. The government expects output to decline by at least 5% this year, and the country’s public-sector deficit will likely widen to more than 7% of gross domestic product in 2020 due to extra spending to tackle the coronavirus crisis.

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