Via Financial Times

German trade union and business leaders have formed an unusual alliance to call for a €450bn public investment offensive in Germany, as concerns mount that years of belt-tightening have left much of the country’s infrastructure badly depleted.

The BDI, Germany’s main business lobby, teamed up with the DGB, the country’s trade union federation, to call for a 10-year investment programme financed by a special-purpose vehicle that would be separate from the federal budget.

But Angela Merkel, the chancellor, quickly rejected the demand, saying that investments were already at a record high and that Germany should stick with the policy of the “black zero” — balanced budgets and no new borrowing.

Economists have long argued that the policy makes no sense at a time of historically low interest rates and growing public frustration with the poor state of Germany’s schools, roads and railways.

Mr Kempf, head of the BDI, said his organisation had concluded that “Germany is missing public investment to the value of 0.5 per cent of GDP”, and called for a large-scale programme of investment in digitalisation, mobility and fighting climate change.

“It’s not about fighting the symptoms of a recession but addressing the causes of our weak growth,” he said. Reiner Hoffmann, head of the DGB, said at a joint news conference with Mr Kempf that Germany could “no longer afford to put the prosperity of future generations at risk with such an outdated infrastructure and underfunded education system”.

The €450bn programme was drawn up by the employer-friendly German Economic Institute in Cologne (IW) and the Macroeconomic Policy Institute of the Hans-Böckler Foundation, which has close links to Germany’s trade union movement. It calls for investments of €20bn to expand public transport in cities, €60bn for railways, €20bn for roads and motorways and €20bn for improving broadband coverage.

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It also includes €75bn for decarbonising the German economy, €110bn for education and €138bn to clear the investment backlog that has built up over the years on the municipal level.

The yearly volume of €45bn in total investment, spread over 10 years, would amount to 1.3 per cent of German GDP, a “manageable sum”, said Michael Hüther, head of the IW.

An IW poll found that two out of three companies in Germany said defective or inadequate infrastructure was hampering their operations.

While such calls for higher spending are a relatively new phenomenon inside Germany, international institutions have been calling on Germany for years to loosen the purse strings. Shortly before she took over as the new head of the ECB, Christine Lagarde called on Germany and the Netherlands to invest more to stimulate the eurozone economy.

“Those that have the room for manoeuvre, those that have a budget surplus, that’s to say Germany, the Netherlands, why not use that budget surplus and invest in infrastructure? Why not invest in education? Why not invest in innovation, to allow for a better rebalancing?” asked Ms Lagarde.

But the government gave a cool response to Monday’s intervention by Mr Kempf and Mr Hoffmann. Ms Merkel said there was “no shortage of investment funds”, pointing to a recent package of climate measures that will cost €50bn.

She said Germany’s problem was not a lack of money but that “planning procedures take too long”. “Sometimes it takes as long as a year-and-a-half to put up a radio mast for improving mobile coverage,” she said.

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She also reiterated her commitment to the “black zero” policy. “We can generate growth with this fiscal policy too, and for that reason it remains our guiding principle,” she told reporters.

Olaf Scholz, finance minister, also insisted that public investment was increasing, and would reach €43bn next year. “Over the 2020s it will be far above €400bn, and the climate package will trigger an additional €150bn,” he said.