Germany Sticks to Balanced Budget But Ready With ‘Many Billions’
Germany Doesn’t Need to Splurge to Address Slowdown, Scholz Says
(Bloomberg) -- Germany is sticking to a balanced budget but is ready to act with "many billions" should its economy and that of Europe head into recession, Finance Minister Olaf Scholz said.
In a speech to parliament Tuesday, Scholz confirmed Germany’s long-standing zero-deficit policy would stand for next year’s budget and allow already high investments to increase further.
"It’s a solid budget that is being achieved without new debt," said the 61-year-old trained lawyer. "We used our room to maneuver, it’s an expansionary budget that includes much investment."
Yet Scholz also said the government will act if the current slowdown morphs into a genuine crisis and that Germany’s solid finances have given the nation a sizable breathing space.
"It’s central that we’re in a position, with the financial fundamentals we have, to respond with many, many billions, if indeed an economic crisis erupts in Germany and Europe," Scholz told parliament. "And we will do it. That’s Keynesian economics come alive, if you will."
The yield on 10-year German bonds was little changed at -0.58% after the statement, while the euro was stable at $1.1041.
His spending plans were approved in cabinet in June and face a vote in parliament in November.
Pressure is mounting on Chancellor Angela Merkel’s ruling coalition to loosen the purse strings as Europe’s biggest economy flirts with a first recession in almost seven years. Export-dependent Germany is suffering the effects of a global slowdown, exacerbated by trade disputes, uncertainty over Brexit and turmoil in the Middle East.
Later in the day, Merkel repeated her promise to stand by a balanced budget, while prioritizing potential tax cuts and reducing debt. The chancellor drew applause in a speech to a taxpayer association when she pledged to abolish in the long run the country’s post-reunification solidarity tax, which her government with the SPD has agreed to scale back. She also said Germany must continue to reduce its public debt as a proportion of economic output to below 60%.
Gross domestic product shrank 0.1% in the second quarter, and economists expect stagnation at best in the three months through September. Weighing most on business confidence and the economic outlook is the ongoing trade conflict between China and the U.S., Scholz said.
Merkel and Scholz have so far resisted widespread calls for the government to abandon its policy of running balanced budgets, although the Social Democratic finance minister has begun to change his tone, emphasizing the need for large-scale investments.
While more than 80% of economists surveyed by Bloomberg last week predicted the ECB will restart bond purchases, policy makers from the IMF, the ECB and as well as the U.S. government have called on countries with room for spending to use it.
Germany will continue to deliver a balanced budget through 2023, Finance Ministry projections show. But some members of Scholz’s SPD support taking advantage of extremely low interest rates to issue new debt to fund increased government spending.
Jakob von Weizsaecker, the Finance Ministry’s chief economist, has set out his vision for an investment program, while Bettina Hagedorn, a deputy finance minister, has said that plans to run balanced budgets through 2023 could be reviewed if economic conditions change.
--With assistance from Patrick Donahue.
To contact the reporters on this story: Birgit Jennen in Berlin at bjennen1@bloomberg.net;Arne Delfs in Berlin at adelfs@bloomberg.net
To contact the editors responsible for this story: Chad Thomas at cthomas16@bloomberg.net, Raymond Colitt, Iain Rogers
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