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Merkel Calls for Quick End to Expansive German Debt Spending

Merkel Calls for Germany to Quickly Unwind Heavy Debt Spending

Chancellor Angela Merkel vowed Germany will return to normal spending levels as soon as possible as she defended the country’s unprecedented borrowing to overcome the fallout from the coronavirus pandemic.

Germany had reduced debt levels to the lowest among major industrialized countries after years of running balanced budgets, and “that puts us in the position to react strongly,” Merkel told lawmakers in Berlin on Wednesday. “We can be proud of that.”

The leader of Europe’s largest economy spoke in the German parliament before taking part in a crunch European Union summit on Thursday. She said she aims to bridge differences to unleash a historic 1.8 trillion-euro ($2.1 trillion) recovery package and get the money flowing by the start of 2021.

Merkel pledged to work for a stronger post-pandemic Europe, setting her sights on an investment deal with China and a pact to slash carbon-dioxide emissions by the end of the year.

“This is Europe’s hour,” said Merkel, who’s political career will draw to a close after elections slated for September next year.

Merkel Calls for Quick End to Expansive German Debt Spending

Her remaining months leading Germany will be dominated by the coronavirus crisis. After putting limits on public and private gatherings on Tuesday, she called on Germans to stick to distancing and hygiene rules ahead of a difficult fall and winter to prevent a new national lockdown.

When people scoff at containment measures, “we’re risking everything that we’ve achieved in the last few months,” said Merkel. “We can’t let nationwide restrictions to threaten huge economic and emotional losses once again.”

Merkel’s government plans new borrowing of 96.2 billion euros next year. The federal budget suspends constitutional debt restrictions for a second year, but that should be an exceptional situation, she said.

“So that we can manage crises that could come in the future, we need to return to a normal, constitutional budget policy as quickly as possible,” Merkel said, stopping short of specifying a time frame.

Merkel Calls for Quick End to Expansive German Debt Spending

Merkel’s openness to borrowing extends to the EU. By opening the door to joint debt, she helped pave the way for the EU’s recovery package, which has run into trouble as member states battle over how to enforce the adherence to democratic values.

The economic recovery package, which includes 750 billion euros in jointly-backed debt and a 1.07 trillion-euro common EU budget, is meant to help combat the steepest recession in the bloc’s history and needs the approval of all 27 member countries.

But member states are wrangling over how to make sure the money isn’t misappropriated by countries where democratic checks and balances are weak.

“We have very difficult talks ahead of us,” said Merkel.

China Deal

With Europe concerned that ties with the U.S. will continue to fray regardless of the outcome of the presidential election, Merkel is keen to reinforce Europe’s geopolitical standing. To that end, she is pursuing a trade deal with China.

“We now want to give these talks a push, obviously on the basis of reciprocity, market access, and try to advance significantly, or even achieve, a political breakthrough,” she said.

In a swipe at the U.S., she praised China’s commitment to carbon neutrality, saying: “Unlike other big emitters, it’s gratifying that China stands by the Paris climate accord.”

©2020 Bloomberg L.P.