Chancellor Angela Merkel and Finance Minister Olaf Scholz brushed aside demands by both unions and businesses On Monday to ditch the balanced budget policy as the economy is slowing down.
Germany’s BDI business lobby and DBG union are calling for an end to the so-called “black zero” policy of no net new borrowing. Instead, they are calling for public investment in infrastructure, taking advantage of negative bond-yields.
The BDI is calling for €17bn investment in digital and transportation infrastructure, which corresponds to 0,5% of GDP, on the top of €43bn earmarked for public investments in 2020.
The rare social partners’ joint call comes as Germany narrowly avoided a technical recession in the third quarter of 2019 posting 0,1% growth. Growth in Europe’s biggest economy will remain weak in the fourth quarter the Bundesbank said on Monday.
With over a decade of monetary expansion and a cheap euro, Germany had lowered its debt and increased its exports without substantial investment. According to Germany’s state-owned development bank KfW, German municipalities have unmet public investment needs of about €138bn.
On Monday, Merkel and Scholz insist that public investment has increased to record levels without borrowing. Germany’s so-called debt brake rule allows a federal budget deficit of up to 0.35% of the gross domestic product alone.
The new president of the European Central Bank, Christine Lagarde, has called on Germany and the Netherlands to invest their budget surpluses to help growth in the bloc.