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The Federal Government's Counter-Cyclical Spending Program (December 20, 1974)

To overcome the recession induced by the oil shock, the federal parliament approved a massive spending program that included support for private investments, a sizable amount of public spending, and wage supports that were intended to restore domestic demand.

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Economic Stimulus Program Can Take Effect – Bundestag and Bundesrat Approve It

The federal government’s economic stimulus program can take effect. The Bundestag and the Bundesrat approved the 10 billion DM plan on Thursday after several hours of debate. The majority of the opposition in the Bundestag and [the majority of] the CDU/CSU-governed states in the Bundesrat also supported the federal government’s draft plan. The passage of this program paves the way for support to private investments in the amount of 7-8 billion DM, the financing of specific employment assistance measures in the amount of 600 million DM for the purpose of lowering unemployment, and the awarding of public contracts worth 1.1 billion DM. In the current economic situation, financial policy can make an important contribution to the economic recovery by having the “courage to go into debt,” as Federal Finance Minister Hans Apel put it.

The need for measures to revive the economy and lower unemployment was also unanimously underscored by speakers of the CDU/CSU. Speaking in the Bundesrat, Minister President of Rhineland-Palatinate [Helmut] Kohl emphasized that the government’s package of measures was by all means necessary but still in need of extensive improvements. There had been no time left, however, to make the necessary changes to the program. The approval of the CDU/CSU, he said, should not necessarily be taken as a sign that the Union parties regard the planned economic measures as good and proper. Rather, as he noted, the CDU/CSU simply doesn’t want to give the federal government any pretext right now “to create a convenient propaganda bogeyman for the economic failures of the future.” The motion by the state of Baden-Württemberg to appeal to the mediation committee [between the Bundestag and the Bundesrat] was not supported by the CDU/CSU-governed states and did not manage to secure a majority in the Bundesrat.

Friderichs: A Certain Scattering Effect

Speaking before the representatives of the federal states, Federal Economics Minister [Hans] Friderichs admitted that the granting of an investment allowance would have a certain scattering effect. Investors who would have awarded contracts between December 1974 and June 1975 regardless [i.e., with our without government support] now stand to benefit from the economic stimulus program. But this side effect, he explained, would have to be accepted in the interest of maintaining overall economic control. Besides, he noted, a selective application of the Investment Allowance Act would be unusually difficult.

According to the federal economics minister, the decision of the German federal bank to limit the increase in the monetary supply to eight percent is a good precondition for financing the upswing without creating room for cost transference. He said that he welcomes this decision because the economic stimulus program can only contribute to the revival of the economy when other prerequisites are met as well. Related to this is the question of how large a cost burden the economy will face next year. As the federal economics minister explained, the drop in raw materials prices and the move away from high interest rate policy means that two cost factors are already approximately calculable. If the wage policy remains within its present framework, then the program can receive his ultimate support. The economic stimulus program, he continued, is not a long-term plan for economic revival; rather it is a short-term measure to spark the business cycle at the desired earlier point in time. Psychological factors play a very significant role in this process, he explained.

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