Merkel Warns ‘Gigantic Sums’ Needed to Meet Germany’s Challenges

Chancellor Angela Merkel said Germany needs massive investment even after the coronavirus pandemic subsides, indicating that the next government may struggle to bridge the funding gap.

Both the state and companies in Europe’s largest economy will need to invest in new technologies and the scale of the challenges will require new forms of cooperation, Merkel said Tuesday at an industry conference. In areas like microchips, quantum computing and batteries, the public sector will have to help with financial aid.

“I want to make it clear again that we will have to spend gigantic sums in coming years,” she said by video link at a conference organized by the BDI, Germany’s main industry lobby. “On the one side that’s the task of industry, but I want to say in all honesty that there are many areas in which without state cash we won’t be able to take the lead.”

Merkel Warns ‘Gigantic Sums’ Needed to Meet Germany’s Challenges

The comments reflect the tension facing Germany’s government after September’s elections. In its campaign platform, Merkel’s conservative bloc -- which is leading in the polls -- ruled out tax increases and committed to return to Germany’s constitutional limits on borrowing, enshrined in the so-called “debt brake.”

Armin Laschet, the Christian Democrat-led group’s candidate for chancellor, reaffirmed the position at the BDI conference, but noted there’s no room to lower taxes.

The pressure on Germany’s financing was evident in the latest federal borrowing plan. On Tuesday, the country’s Finance Agency increased the amount of planned bond sales in the third quarter by 2 billion euros ($2.4 billion) to 62 billion euros. Including bills, Germany will issue 122 billion euros worth of securities in the July-September period.

The “uncertain pandemic development” and “related challenges to budget planning” could prompt additional adjustments to the issuance schedule for the fourth quarter, the agency said.

Merkel’s cabinet is due this week to approve the government’s budget plans for next year and through 2025, including an extra 18.2 billion euros in net debt in 2022. The additional borrowing takes the total for this year and next to more than 340 billion euros, as Germany spends freely to support businesses still struggling due to earlier lockdown measures.

To help deal with the crisis, the government aims to suspend constitutional limits on borrowing for a third straight year next year before reinstating the “debt brake” in 2023.

While Germany is unwinding pandemic curbs as infections rates decline, many business continue to struggle, and the government earlier this month extended financial support until the end of September to underpin the recovery. She indicated this aid will soon come to an end.

An “exceptional situation” like the pandemic justifies significant state support but this itself must also be seen as an exception, Merkel said Tuesday.

“When the reason for the aid disappears then we have to take back the support measures,” she said. “Otherwise, there would be a threat of lasting distortion to competition, and public budgets couldn’t come close to covering the demand.”

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