The head of Germany’s business lobby has called on the government to give up its balanced budget rule and take on new debt, joining a growing chorus of economists and politicians demanding a rethink of Berlin’s mantra of no new borrowing.
Dieter Kempf, head of the BDI, told the Financial Times it was time to put the rule “on the back burner”, especially in light of the country’s crying need for big investments in education and digital infrastructure.
One of Germany’s most respected business leaders, Mr Kempf said the BDI had supported the policy when it was introduced more than a decade ago “because there was a real need then to improve budgetary discipline”.
“But now we have a different situation,” he added. “The economic boom is coming to an end, the state can borrow at negative interest rates and we have a big investment deficit.”
His remarks amount to one of the most high-profile interventions in a simmering debate over whether Germany’s strict adherence to balanced budgets — known in Germany as the schwarze Null, or black zero — is still fit for purpose, especially at a time of flagging growth and historically low borrowing costs.
The rule is closely identified with Germany’s hawkish finance minister, Wolfgang Schäuble, who was famed for his tight control of government spending. Under him and his successor, Olaf Scholz, Germany has run budget surpluses five years running, helped by strong economic growth, record-high employment and strong exports that boosted government revenues.
But circumstances have changed. The German economy is slowing, hit by US-China trade tensions and fears of a disorderly Brexit, and the risk of recession is growing. Meanwhile, economists and some businessmen say an obsession with the schwarze Null does not make sense when investors are prepared to pay to lend to Germany. The current yield on a German 10-year bond is minus 0.60 per cent.
Influential voices outside Germany are also calling for a rethink. Mario Draghi, the outgoing European Central Bank chief, warned this month that governments needed to act quickly to revive flagging eurozone growth, and urged them to do more to boost aggregate demand. Without singling out Germany, he said it was “time for fiscal policy to take charge”.
So far, Ms Merkel and Mr Scholz have both insisted they will stick to the black zero policy. Their room for manoeuvre is, in any case, strictly circumscribed by German law: under a rule known as the debt brake, which was inscribed into the country’s constitution in 2009, the federal government’s structural deficit is limited to 0.35 per cent of gross domestic product while Germany’s 16 regions are barred from running deficits altogether.
Mr Kempf said the debt brake did, however, give the government some leeway that the black zero did not. “Under the rules of the debt brake the government could raise €10bn-€15bn a year, which it could use for investment,” he said.
He added that ministers could use this money as a “lever” to mobilise private capital. “Then we could ultimately get to 30, 40, €50bn a year,” he said. Investment priorities included Germany’s notoriously patchy digital infrastructure, and the need to refurbish old, draughty buildings to make them more energy efficient, he added.
Business leaders have long complained that Germany’s infrastructure constraints — in particular its slow Internet speeds and dodgy mobile coverage — were turning into a serious obstacle to growth.
In the interview, Mr Kempf dismissed fears of a serious economic downturn in Germany but noted a “very cautious, restrained mood” among BDI members, “especially when it comes to investment”.
He said that although the manufacturing sector was struggling and industrial production had fallen, the domestic economy was still thriving. “After 10 years of growth, with very high employment, private consumption is very strong and people are investing a lot privately,” he said. “As a result, trade and construction are still doing well.”
But he warned that “that could change fast”.
“If people fear they will lose their jobs, then confidence will ebb away and that will impact the domestic economy,” he said.