(Bloomberg) -- To much of the outside world Germany seems so wedded to its balanced budget policy that it will only deploy fiscal stimulus when it’s already too late.
But officials in Chancellor Angela Merkel’s government have already drawn up a raft of options. Some may never see the light of day, but others are already being rolled out, according to people with direct knowledge of the plans. They asked not to be identified commenting on private discussions.
The two-pronged approach is based on the government’s reading of the current economic situation as well a cost-benefit analysis of the stimulus package launched in 2009. That study found that some measures were more effective than others.
In the first phase, the government is stepping up investments that improve efficiency and boost confidence. Those may take months or even years to trickle through to the real economy.
If they prove insufficient and the the economy risks a serious recession, the government would launch a short-term stimulus program geared to kick-start domestic demand. Finance Minister Olaf Scholz has said this could be worth around 50 billion euros ($55 billion).
Possible Stimulus Package
The government considers it’s still not clear whether Germany will plunge into a full-blown recession and, as a result, the full array of remedies may not need to be deployed.
Traditionally, Germany shifts to high alert whenever the global economy looks to be slowing -- the country’s dependence on exports means that it tends to head south with the rest of the world. But with the domestic market still relatively robust and the ECB renewing monetary stimulus, Merkel’s economic team judges that this time the path toward recession is less certain.
On the down side, a prolonged trade war could eventually lead to a much bigger fallout than expected, according to another scenario being considered. That spurred the government to gradually increase investments and bolster the labor market as a preemptive and precautionary measure.
Last month it unveiled a 54 billion-euro climate package, for which the cabinet on Wednesday will approve a supplementary budget. The government is seeking parliamentary approval this year, so that the measures can take effect as quickly as possible, said one official involved in the discussions.
During October, the labor ministry plans to unveil another bill with subsidies for employees to reduce their work load and enter training programs in times of crisis. A similar program back in 2009 helped secure some 1.4 million jobs, according to government estimates.
How many of these other measures get deployed will depend on whether the economy enters a "deep recession" and there are no real criteria to define that. So the economists who drafted the plans won’t decide whether to implement them.
That call is down to the politicians.
