Germany has fiscal muscle to counter next crisis, says finance minister

A picture taken on June 28, 2019 shows a view of the landmark TV tower and
  • Scholz said the Germany economy was suffering mainly from weaker foreign demand and business uncertainty linked to factors such as the escalating trade dispute between the US and China

BERLIN: Germany has the fiscal strength to counter any future economic crisis “with full force,” Finance Minister Olaf Scholz said on Sunday, suggesting Berlin could make available up to €50 billion ($55 billion) of extra spending.
A government official told Reuters earlier this month that the Finance Ministry was toying with the idea of issuing debt in line with the more formal debt-brake rules to help finance a climate protection program.
Speaking at a news conference, Scholz acknowledged the debate about debt-financed spending but said a state should live within its means in economic good times, not least because this meant it would be better placed to act when things go wrong.
Germany’s debt level is expected to fall to roughly 58 percent of economic output this year from 60.9 percentg the previous year, putting it below the EU’s debt ceiling of 60 percent and giving it more flexibility on future spending.
“So if we have a debt level in Germany in relation to economic output that is below 60 percent, then this is the strength we have to counter a crisis with full force,” Scholz said.
Scholz said the global financial crisis in 2008/2009 had cost Germany roughly €50 billion, adding: “And we have to be able to muster that (sum of money). And we can muster that. That’s the good news.”

FASTFACT

• Low debt level puts Germany in a strong position, says the finance minister.

• If crisis hits, gov’t can spend up to €50 billion, he says.

The Finance Ministry declined to comment on a media report on Friday that said Berlin would be prepared to ditch its balanced budget rule and take on new debt to counter a possible recession. The German economy contracted 0.1 percent quarter-on-quarter from April to June, pushing Europe’s biggest economy close to a recession as sentiment surveys and industrial orders data suggest hardly any improvement in the third quarter. Most economists define a recession as a period of at least two consecutive quarters of contraction.
Scholz said the Germany economy was suffering mainly from weaker foreign demand and business uncertainty linked to factors such as the escalating trade dispute between the US and China.
“The biggest problem is uncertainty, including that caused by the Chinese-US trade war,” Scholz said.
Scholz has confirmed speculation over the weekend that he stood ready to run for the party leadership of his co-ruling Social Democrats (SPD), who have seen their support fall since joining Merkel’s conservatives in a coalition government.