Germany’s Scholz Calls for Spending to Spur Growth Out of Crisis
Olaf Scholz, Germany’s finance minister, departs after speaking in the Bundestag in Berlin, Germany. (Photographer: Krisztian Bocsi/Bloomberg)

Germany’s Scholz Calls for Spending to Spur Growth Out of Crisis

German Finance Minister Olaf Scholz laid out an agenda that sees Europe’s largest economy continuing to spend aggressively beyond the immediate fallout of the coronavirus.

Speaking to lawmakers in the lower house of parliament on Tuesday, Scholz defended plans for new borrowing of nearly 180 billion euros ($218 billion) next year -- almost double the amount initially budgeted. The Social Democrat argued for Germany to stick to expansionary spending and invest in digital technologies and the environment to spur growth.

“We will grow out of this crisis,” Scholz, who is running to succeed Angela Merkel as chancellor next year, said in Berlin. “We will win the future by making sure we make the right investments.”

Germany’s budget includes some 30 billion euros for possible extra stimulus measures, which have yet to be specified. The willingness of the federal government to spend freely has spurred opposition, especially from Merkel’s conservative bloc which wants a quick return to constitutional debt limits.

Germany’s Scholz Calls for Spending to Spur Growth Out of Crisis

By contrast, Scholz’s SPD and the Greens are arguing for a looser approach, setting the stage for fiscal policy to be a key point of contention ahead of September elections.

Scholz’s position has backing from the OECD. In a report on Tuesday, it said Germany’s infrastructure investment has been “insufficient” and could be stepped up as an important part of the recovery. It highlighted clean transport, digital technologies and health as key areas.

The OECD also warned that loan defaults could increase, which would be particularly damaging for German banks due to their low profitability. It said the situation must be closely monitored and warned against a rapid withdrawal of government support for the economy.

The debate about German spending has intensified as the country struggles to rein in its outbreak. A partial shutdown, which closed bars, gyms and cinemas but kept schools and most other businesses open, is costing the government at least 15 billion euros ($18 billion) a month.

With contagion rates still nearly triple a government target, some states are pushing through tougher measures, creating the risk of more economic disruption. Bavaria will impose a strict curfew in hard-hit areas starting Wednesday. The eastern state of Saxony plans to shut all non-essential shops beginning next week, according to the Bild newspaper.

With curbs likely to be extended and tightened nationally, Germany’s finances could come under further pressure. Merkel’s government has already said current aid, which reimburses business for 75% of lost revenue, can’t continue indefinitely.

“We can and definitely must do what we can so our economy in Germany grows,” said Scholz.

©2020 Bloomberg L.P.

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