‘Germany will do what’s needed without new debts’

German Finance Minister Olaf Scholz presented a 2020 budget that sticks to the country's longstanding no-new-debts "black zero" policy, defying speculation on financial markets that Berlin might borrow to fund investments.

'Germany will do what's needed without new debts'
Finance Minister Olaf Scholz and Chancellor Angela Merkel on Tuesday. Photo: DPA

“It's an expansionary budget” of around €350 billion, Scholz told members of the Bundestag on Tuesday.

For years, international organizations and partner nations have urged Germany to boost domestic spending, in part to balance out its massive trade surplus.

At home, where Scholz is running for co-leadership of the centre-left Social Democratic Party (SPD), many economists and his party colleagues have pressed government to rejuvenate crumbling infrastructure and outdated schools with borrowed cash.

“Germany will do what's needed without new debts,” Scholz insisted to MPs.

At the height of the financial crisis in 2009, lawmakers changed Germany's constitution to strictly limit how much the government could borrow, with some allowances in case of weaker economic performance.

But under Scholz and his conservative predecessor Wolfgang Schäuble, Berlin has stuck voluntarily to a still stricter no-deficit policy known as the “black zero” since 2014.

“At present, we are not in a crisis” that would justify abandoning it, Scholz said.

'Urgently settle trade conflict'

But he called on Washington and Beijing to settle “urgently” the United States-China trade conflict that has slowed the world economy and especially harmed export-oriented Germany.

Weighed down by protectionism, weaker emerging markets and the threat of Brexit, Germany's economy shrank 0.1 percent in the second quarter and may enter a recession in the third.

READ ALSO: German economy is 'down on its knees': Is a recession looming?

Scholz told an audience of bankers in Frankfurt last week that the federal government is “very ambitious” regarding investments, budgeting €40 billion per year.

But critics on the left note that as the economy grows, that sum will represent an ever-smaller share of GDP with each passing year.

Meanwhile items like a housing benefit for families are counted towards the total, a far cry from spending on school buildings, bridges or railways.

On top of that, Scholz has not included costs for implementing a climate protection package, set to be agreed on September 20 among the ruling centre left-conservative coalition under Chancellor Angela Merkel.

Economy Minister Peter Altmaier suggested last week that climate spending on items like cheaper train tickets or support for households to switch from oil-fired heating could come from a new 50-billion-euro investment fund empowered to borrow on financial markets.

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German watchdog steps up monitoring of popular N26 online bank

Germany's financial watchdog on Wednesday ordered online bank N26 to step up "internal controls and safeguards" to prevent money laundering and terrorist financing, and said it was appointing a special representative to monitor progress.

German watchdog steps up monitoring of popular N26 online bank
An N26 card. Photo: Wikimedia Commons

Bafin’s announcement marks an escalation of previous warnings to the popular Berlin start-up, which has come under fire in the past for not properly verifying the identities of new customers.

“Bafin ordered N26 Bank GmbH to rectify deficiencies both in IT monitoring and in customer due diligence,” the regulator said in a statement.

N26 “is required to ensure that it has the adequate personnel, technical and organisational resources to comply with its obligations under anti-money laundering law,” it said.

A “special commissioner” would oversee the company’s efforts, Bafin added. Founded in 2013 and known for its transparent debit cards, digital bank N26 is one of Germany’s most high-profile financial technology or “fintech” firms and now has seven million customers in 25 countries.

Its rapid growth has rested in part on fast-track identity procedures for new customers.

READ ALSO: What is the digital German bank N26 that’s about to hit a million users?

In 2019, German business weekly WirtschaftsWoche said it had managed to open accounts using forged IDs.

N26 on Wednesday pledged to “work closely” with Bafin and the special representative.

It said it had already significantly increased measures to prevent money laundering in recent years, “but we recognise that more must be done in this area”.

The coronavirus crisis had contributed to a spike in fraudulent online transactions worldwide, N26 added, “increasing the demands placed on banks in the fight against crime”.