‘Uncertainty over coronavirus’: New calls for economic stimulus in Germany

'Uncertainty over coronavirus': New calls for economic stimulus in Germany
German finance minister Olaf Scholz speaks to the press earlier this year in Berlin. Photo: DPA.
With years of fat budget surpluses, Germany has long faced calls at home and abroad to loosen its purse strings, but the spread of the novel coronavirus and its likely impact on economic growth have given them new impetus.

German finance minister Olaf Scholz plans to temporarily suspend a government “debt brake” to hand out tens of billions of euros to struggling municipalities, weekly Die Zeit reported Wednesday. 

READ ALSO: Just how worried should German residents be about the coronavirus?

“Scholz will present a plan in March,” Die Zeit wrote without citing its sources.

Scholz would need two-thirds majorities in both parliament's directly-elected lower house and the upper house representing the states to suspend the debt brake.

Anchored in the German constitution at the height of the financial crisis in 2009, the rule prevents government from running a deficit of more than 0.35 percent of gross domestic product (GDP) in normal times.

Finance ministry spokeswoman Katja Novak declined to comment on “speculation,” telling AFP “the finance minister will present his proposals for dealing with old debt early this year.” 

“At present various options are being discussed,” Novak added.

Shifting responsibility to the federal government 

Scholz has long backed plans to lift a near-unbearable burden of repayments from 2,500 municipalities by shifting €40 billion of their debts to Berlin.   

He hopes it would lift a major hurdle to increasing infrastructure spending and eliminating financial and planning bottlenecks in municipalities responsible for projects like roads and schools.

READ ALSO: Germany clings to no debt policy in 2020 budget

Many of the towns affected are in deindustrialising “rust belt” zones, like Germany's most populous state North Rhine-Westphalia.

Employees of the German finance ministry make a human “black zero” in 2017. Photo: DPA. 

After years of a no-new-debts policy known as the “black zero,” economists and EU partners are increasingly pressuring Berlin to upgrade ageing infrastructure and stimulate its flagging economy with new spending.

Urgency due to coronavirus, manufacturing slowdown 

A manufacturing slowdown in Europe's top economy and the looming impact of the coronavirus have added urgency to such calls.

READ ALSO: 'It's going to be a difficult year': What German economists predict for 2020

What's more, the European Central Bank's monetary policy is already extremely loose, with negative interest rates and mass bond purchases under a “quantitative easing” scheme. 

With little room to manoeuvre in Frankfurt, eurozone governments are on the hook to stimulate flagging economic growth, especially in case of a potential hefty shock stemming from an unforeseen event like the virus.

Olaf Scholz follows Chancellor Merkel into a federal cabinet meeting in Berlin. Photo: DPA. 

So far, Chancellor Angela Merkel's CDU conservatives have been less favourable to upping spending than Scholz's centre-left SPD party.

But CDU economy minister and Merkel confidant Peter Altmaier told DPA news agency on Tuesday that “uncertainties caused by the coronavirus” made it “decisive that we deliver economy policy stimulus now to revitalise growth.” 


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