The German economy contracted at its steepest rate on record in the second quarter and the government is desperate to mitigate the effects of the pandemic as much as possible

German coalition parties agreed on Tuesday to extend measures to cushion the effects of the coronavirus crisis on Europe’s biggest economy, including prolonging a short-time work scheme and a freeze on insolvency rules.

The German economy contracted at its steepest rate on record in the second quarter and the government is desperate to mitigate the effects of the pandemic as much as possible, especially in the run-up to elections in the autumn of 2021.

“Corona remains a reality and a challenge,” said Annegret Kramp-Karrenbauer, leader of the conservative Christian Democrats (CDU) after around seven hours of talks with their centre-left Social Democrat (SPD) coalition partners.

“Today we have agreed that we will extend important and effective measures to how we deal with the coronavirus,” she added.

Among the main decisions were an extension of short-time work subsidies, which had been due to expire in March 2021, until the end of next year and prolonging bridging aid for small and mid-sized companies until the end of this year.

Short-time work saves jobs by allowing employers to reduce the employees’ hours but keeps them in work.

The parties also agreed to prolong measures aimed at staving off bankruptcies by allowing firms in financial trouble due to the pandemic to delay filing for insolvency until the end of the year.

German Chancellor Angela Merkel’s government has also brought in a massive stimulus package, worth more than 130 billion euros, that it hopes will help the economy return to growth.

The coalition parties also agreed on an electoral reform aimed at reducing the number of lawmakers in the Bundestag lower house of parliament.

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