Germany Readies Emergency Budget as Merkel Enters Self-Isolation

Chancellor Angela Merkel speaks about the pandemic in Berlin Sunday. A physician who gave her a pneumonia vaccine has tested positive for the coronavirus.

Photo: Michael Kappeler/Associated Press

BERLIN—German Chancellor Angela Merkel went into self-isolation at home on Sunday after being exposed to a person infected by the new coronavirus, a day before her government was set to adopt fiscal measures worth up to €500 billion to help shield Europe’s largest economy from the fallout of the pandemic.

Ms. Merkel had received a vaccine against pneumonia on Friday by a physician who was later found to be infected with the virus, her spokesman said in a statement Sunday.

The chancellor will conduct her business from home until she receives a reliable test result, her spokesman Steffen Seibert said in a statement.

“She will be tested regularly in the coming days, because a test would not be conclusive at this stage,” he said.

The health of Ms. Merkel, who is 65 years old, has been a subject of speculation in local media after she suffered several attacks of shaking in public last year, forcing her to remain seated during official appointments when the national anthem was played.

A police car drives near the Brandenburg Gate in Berlin on Sunday, days after the government ordered all nonessential businesses to close to help limit contagion.

Photo: clemens bilan/Shutterstock

Her deputy, Finance Minister Olaf Scholz, who serves as Germany’s vice chancellor, will now preside over the cabinet meeting on Monday that will draft an emergency budget, officials said, which could be approved by parliament as early as Wednesday. The new budget would allow the government to raise borrowing to the tune of €150 billion this year and include several hundreds of billions euros more in loan guarantees to help businesses of all sizes secure liquidity amid a coronavirus shutdown.

The package would cause the federal government to post a budget deficit for the first time since 2014, in a stark reversal of its longstanding policy of fiscal restraint.

The series of bills could even allow the German government to increase its liabilities beyond the €500 billion mark if the country’s shutdown extends for longer or causes a sharper downturn than currently expected. An estimate by Deutsche Bank last week showed the country’s gross domestic product could fall by as much as a quarter in the three months to the end of June.

The move comes after the German government last week ordered all nonessential businesses to close to help limit contagion, and large industrial companies such as the car makers Volkswagen AG and BMW AG closed their factories. On Sunday, Ms. Merkel announced a tightening of these measures, including a ban of public gatherings of more than two people, with the exemption of families and people who live in the same household.

“We must make sure that the economy overcomes this situation and protect as many jobs as possible,” Mr. Scholz said in a broadcast interview Saturday night. “That’s why we have decided to borrow a very large additional amount and ask the parliament to allow this, so we could have all the power we need in the next weeks and months.”

One official close to Mr. Scholz said the new budget would create a €150 billion fund that could take equity stakes in German companies in need of fresh capital. Separately, the government would issue guarantees backing up to €400 billion in bank loans for companies facing liquidity crunches, the official said.

The official said that the fund would be modeled on Sofin, a vehicle set up to bail out banks during the 2009 financial crisis.

A small plane flew over downtown Hamburg, Germany, on Saturday with a banner urging says residents to remain indoors.

Photo: Christian Charisius/Zuma Press

Ms. Merkel’s government agreed last week to provide unlimited loan guarantees for businesses hit by the fallout from the pandemic. The measures were cleared on Sunday by the European Union’s state aid watchdog, which has suspended its state aid rules for the duration of the crisis.

The ability of Germany’s government to borrow is governed by strict fiscal rules enshrined in the constitution. Under the rules, the country can borrow up to just 0.35% of gross domestic product in normal times. The rules can be amended only by a two-thirds majority of parliament.

In practice, however, successive governments have delivered a budget surplus every year since 2014. Most German economists welcome the decision to remove all fiscal constraints given the extraordinary circumstances and the risk that Germany’s industry could suffer lasting damage even in a short downturn.

Write to Bojan Pancevski at bojan.pancevski@wsj.com

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