Merkel strikes deal to extend and tighten German virus curbs

On a video call Tuesday, Merkel and the premiers of the 16 states decided to prolong lockdown rules -- which include closing schools and nonessential stores -- until mid-February, according to a person familiar with the agreement, who asked not to be identified discussing confidential information.

They also moved to limit private meetings to only one other person, make medical face masks obligatory on public transport and agreed to intensify pressure on companies to allow employees to work from home where possible, another person familiar with the talks said. The call was brought forward by almost a week due to concern faster-spreading variants of the disease could establish themselves in Europe's biggest economy.

Authorities were under pressure to act with the contagion rate still nearly triple a government target, despite increasingly stringent curbs -- including tighter limits on private gatherings and movement restrictions in hard-hit areas. The country has had 2.05 million covid-19 cases and nearly 48,000 deaths.

While infections have been receding in recent days, Merkel has warned that the new mutations could cause a surge like in Britain and Ireland.

Some of the regional leaders -- who are responsible for health policy under Germany's federal system -- were pushing back against Merkel's bid to prolong school closures, and a final decision on the issue had yet to be made, Der Spiegel magazine reported earlier, without identifying the source of its information.

Tuesday's talks marked the first since Armin Laschet -- the premier of North Rhine-Westphalia -- was elected head of Merkel's Christian Democrats. He'll compete with Markus Soeder -- his Bavarian counterpart from the CSU sister party -- for the right to be the conservative bloc's chancellor candidate in September elections.

Ahead of the tighter measures, Merkel's administration expanded aid to affected companies with additional support totaling at least $12 billion (10 billion euros) in the coming weeks. That includes bridge financing of as much as 1.5 million euros a month and writing off unsold winter goods.

"We have the strength to continue taking massive action to offset the coronavirus crisis, and we will do exactly that," Finance Minister Olaf Scholz said Tuesday in Berlin. "We will continue to do everything to support companies and workers, and protect health."

Extended lockdowns are likely to cause German output to shrink in the first three months of 2021, with Bloomberg Economics forecasting a 3% contraction before a rebound starts in the second quarter.

Germany risks severe economic consequences if it fails to contain the pandemic, with companies carrying too much debt and cash reserves exhausted, according to one of the country's leading economists.

"I'm afraid we're too optimistic about getting out of this crisis quickly," said Marcel Fratzscher, president of the German Institute for Economic Research, or DIW.

The country has still fared relatively well compared with its European peers, mainly due to the extensive fiscal support and a large manufacturing sector that is less exposed to restrictions than shops and restaurants. Investors grew more confident, with ZEW's gauge of expectations for the next six months rising to 61.8 in January from 55.0 a month earlier.

Europe has emerged as a global hot spot for the virus, with more than 401,000 fatalities and nearly 17 million infections. The European Union is urging member states to do more to track dangerous virus mutations with genome sequencing. Only one is testing more than 1% of samples, while some others aren't sequencing at all.