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.
“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.
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.
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.”