Business Maverick

Business Maverick

Germany’s Debt Spending May Become the New Normal, Official Says

Shoppers wearing protective face masks cross Alexanderplatz square in Berlin, Germany, on Monday, Aug. 24, 2020. German coronavirus cases jumped this month as authorities boost testing and summer travelers return home, according to the Robert Koch Institute. Photographer: Krisztian Bocsi/Bloomberg

Germany’s spending to counter the coronavirus crisis and modernize its economy means the country shouldn’t return to a balanced budget anytime soon, according to a senior Finance Ministry official.

The comments are an unusual admission by a government official that Germany’s debt-financed spending during the pandemic might reflect a new approach rather than just a temporary break from the tradition of balanced budgets, or a so-called black zero.

“A balanced budget isn’t obligatory,” Werner Gatzer, a deputy finance minister, said Monday in a speech in Berlin. “We should return to normality. But normality isn’t necessarily a black zero.”

Chancellor Angela Merkel’s government abandoned its balanced-budget policy this year and is set to borrow about 218 billion euros ($258 billion). A deficit of more than 80 billion euros is set for next year to fight the fallout from the pandemic, people familiar with the matter have said.

Finance Minister Olaf Scholz reiterated last week that Germany should aim to get its finances back to “normal” in 2022.

Read more: Germany Sees at Least 80 Billion Euros in New Debt Next Year

Gatzer, who has helped draw up Germany’s budget plans for 19 years, suggested that balanced budgets might no longer need to be a goal as the country seeks to invest in digital technology and become more environmentally sustainable.

“The transformation process can’t be allowed to fail because of funding,” he said. “The black zero is good, but it isn’t decisive for economists in mastering the challenges.”

Germany is preparing for a political transition ahead of next year’s elections, which will determine a new leader for Europe’s largest economy for the first time in 16 years. Scholz, Gatzer’s boss, is running for chancellor for the Social Democrats, the junior coalition partner of Angela Merkel’s Christian Democrat-led bloc, which is also grappling with its own political direction.

Read more: China Shapes the Fears and Ambitions for Germany After Merkel

Germany’s constitutional debt brake obliges the government to keep debt under control. In good times, the rule allows for a structural deficit of 0.35% of gross domestic product. In times of recession, new borrowing can go up in proportion with the economic decline.

In the past, Germany has been reluctant to make full use of its spending power and even generated surpluses. That’s prompted the International Monetary Fund, the European Central Bank and others to urge Germany to use its constitutional leeway to raise debt.

While his remarks may stir controversy among CDU fiscal hawks, Gatzer said he supports the limit on debt.

“This isn’t about taking on as much debt as possible,” he said. “The constitutional debt brake will have to be re-implemented. Interest rates are at a level that allow us to afford it. My goal is to make suggestions to the government to respect the debt brake again.”

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