Green Keynesianism

Economic Stimulus Package / Green Keynesianism

Economic Stimulus Programme
As a reaction to the economic and financial crisis that began at the end of 2008 when the American banking system collapsed, the German Federal Government approved two massive economic stimulus packages then and at the beginning of 2009. The most well-known element of the programme is the much discussed "wrecking bonus", which was introduced in the course of the first stimulus package that was approved by the Bundesrat in December of 2008. The second stimulus package was passed in March of 2009 and amounts to around 75 billion Euros (not including loan guarantees). In total the two packages amount to circa 107 billion Euros, corresponding to about 2.6 % of the German GDP. It has proven to be extremely difficult to estimate in detail how much money will be allocated and for what. On its information site, the federal government has only roughly divided the measures into four groups: investments, tax relief, employment, and loan guarantees and credits.

In the coming years, the federal government intends to allocate about 16.4 billion Euros through the investment programme, in which the area of education should play a major role. The municipalities will receive circa 6.5 billion Euros for reconstruction and extension of kindergartens, schools, and universities. A further 3.5 billion Euros will be placed at the disposal of municipalities for the extension of municipal infrastructure.

The most familiar element of the stimulus package is the so-called "wrecking bonus". This expenditure, for the purpose of stimulating the German automotive industry, adds up to 1.5 billion Euros. Every citizen who chooses to scrap their current automobile, provided it is at least nine years old, and buy a new (or slightly used) car, receives a grant of 2,500 Euros. On April 8th, the federal cabinet decided to allocate an additional 3.5 billion Euros to this programme. One may apply for the grant until December 31st, 2009. The preliminary impacts of this "bonus" were seen as early as February, 2009: in January automotive sales were decreasing by 14 %, whereas in February, they rose by 21.5 %.

There are many critical points to be made concerning this measure. Firstly, the "environmental bonus" was not at all environmentally oriented, as citizens could have bought a Porsche, Ferrari or a number of other cars that release a remarkable amount of CO2, and still receive the bonus. Only through the reasonable decisions of those citizens that buy small, CO2-saving vehicles, could the "wrecking bonus" become an "environmental bonus". Other countries have been more ambitious in this respect. GBG demands the modification of the "wrecking bonus" to a "changing bonus" of 1,500 Euros, which would be given only for new cars with 25 % fewer CO2 emissions.

Tax Relief
The federal government has taken special measures to reduce the burden placed on companies and families. With regard to income tax, the tax exemption will be increased by 170 Euros to 7834 Euros backdated from January 1st, 2009, onwards. In 2010 it will be raised to 8004 Euros. The marginal tax rate decreased in January 2009 from 15 to 14%. Furthermore, the health insurance fund fees for compulsory health insurance funds ought to decrease in July of 2009 from 15.5 to 14.9%.

For the year 2009, the German federal government has extended the part-time working benefit from 12 to 18 months. This measure is very controversial, because it is an altogether disputed means in the Federal Employment Agency. From November of 2008 until March of 2009 62,000 companies with about 2.1 million employees have announced part-time work. The budget, until 2010, amounts to a total of 2.1 billion Euros.

Loan Guarantees and Credits
The German federal government allocated 15 billion Euros to helping the middle class through a special programme through reconstruction loan corporations. For companies with an annual turnover of at least 500 million Euros, a further 25 billion Euros is allocated through loan corporations. An additional 75 billion Euros will be allocated by the federal government as loan guarantees.

Our proposals
The two economic stimulus programmes approved by the federal government are the largest expenditure packages in the history of Federal Republic of Germany. In 2009 and 2010 a total of 80 billion Euros will be spent. However, compared to the expenditures of the EU (a total of 500 billion Euros) and of the USA (800 billion Dollars) this amount appears minor. Regardless, through economic recovery measures, the federal government is provided with a great chance to reconstruct the economy in an environmentally sound way by allocating money to environmentally reasonable and thus economically sustainable programmes that strengthen an environmentally and socially sustainable economy.

Further Information