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Germany to tap all fiscal options in case of economic crisis

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Via Yahoo Finance

By Michael Nienaber

BERLIN (Reuters) – Germany intends to stick to its balanced budget rules for now and boost spending without incurring new debt, Finance Minister Olaf Scholz told Reuters on Tuesday, adding that the government would use all fiscal options in a severe economic crisis.

Scholz’s remarks that Germany would loosen the purse strings to fight any downward economic spiral came days before world financial leaders meet in Washington to discuss how best to counter a slowing world economy.

Leading economic institutes earlier this month called on Chancellor Angela Merkel’s government to ditch its budget policy of incurring no new debt if the growth outlook deteriorates.

Asked about this recommendation, Scholz told Reuters in an interview that Germany was experiencing a phase of economic weakness caused by trade disputes, Brexit uncertainty and other political risks, such as Turkey’s invasion of northeastern Syria. But he insisted there was no economic crisis right now.

“We have a federal budget that works without new debt. Our massive investments and expansionary fiscal policies of recent years have worked without new debt — and will do so for the time to come,” Scholz said.

“But of course in case of an economic crisis, which so far is not emerging, we have all fiscal options on the table,” Scholz said, suggesting that Germany’s mantra of no new debt to finance a fiscal stimulus package was not set in stone.

The German government will lower its 2020 forecast for economic growth to 1.0% from an earlier estimate of 1.5%, a source familiar with the projection told Reuters on Tuesday.

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The source said Germany still expects this year’s gross domestic product to grow 0.5%. The government is expected to update its economic growth projections on Thursday.

Under the German debt brake rule, the federal government can take on new debt of up to 0.35% of economic output. That would be roughly 5 billion euros (4.32 billion pounds) in 2020 after special factors such as growth and the outflow of earmarked money from special-purpose funds have been taken into account.

The permitted debt would rise to 8.4 billion euros in 2021 and 9.7 billion euros in 2022, according to budget experts.

(Reporting by Michael Nienaber, editing by Larry King)

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