LDN - Business

Scholz: Germany can fulfill its tasks without taking on new debt

[August 12, 2019] By Michael Nienaber

BERLIN (Reuters) - German Finance Minister Olaf Scholz said on Monday that Berlin could pursue more ambitious climate protection measures and other big policy steps without having to incur new debt.

The comments by Scholz, a senior member of the center-left Social Democrats (SPD), came after a government official told Reuters last week that Berlin was considering the issuance of new debt to finance a costly climate protection package.

"We can fulfill the tasks that we're tackling without new debt," Scholz said when asked by Reuters during a short press statement if he would stick unreservedly to the government's goal of a balanced budget.

Unlike Scholz, other leading members of the SPD, junior partner in Chancellor Angela Merkel's ruling coalition, want to abandon the balanced budget goal and increase public spending on infrastructure and climate protection with new debt.

But Merkel's chief spokesman Steffen Seibert said on Monday that the conservative leader stood by the principle of a balanced budget. "We have a policy that is not being called into question that we had balanced budgets in recent years and we continue to strive for those," Seibert said.

Since 2014, Merkel's government has managed to raise public spending without incurring new debt thanks to an unusually long growth cycle, record-high employment, buoyant tax revenues and the European Central Bank's bond-buying plan.

"VOODOO FISCAL POLICY"

But as Germany's borrowing costs sink to new lows almost daily and its economy stalls amid weaker global demand and bruising trade disputes, the government is facing ever louder domestic and international calls to provide extra fiscal stimulus by running a small deficit again.

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German Finance Minister Olaf Scholz speaks during a news conference at the G7 finance ministers and central bank governors meeting in Chantilly, near Paris, France, July 18, 2019. REUTERS/Pascal Rossignol

The leader of Germany's surging Greens party, a likely coalition partner in any future government, urged Merkel's conservatives on Monday to ditch their balanced budget goal and commit to financing additional public spending with new debt.

"The insistence on the 'black zero' (a balanced budget) is voodoo fiscal policy... We'll need massive investments in climate protection," Habeck told Deutschlandfunk radio.

Germany's Greens have surged in opinion polls over the past few months into second place. In a Forsa poll published on Monday, Merkel's conservative CDU/CSU bloc fell one percentage point to 26% while the Greens rose two points to 25%.

Through their electoral success in many federal states and the Bundesrat upper chamber of parliament, the Greens already have a major say in passing laws.

The SPD, which has seen its support crumble during its period as Merkel's junior coalition partner, is now weighing whether to quit the government.

On the basis of current opinion polls, the Greens would be the only possible alternative partner for Merkel's conservatives as the latter have ruled out any tie-up with the far-right Alternative for Germany (AfD) or the far-left Linke. The conservatives' traditional coalition partner, the pro-business FDP, is not strong enough in parliament.

(Reporting by Michael Nienaber,; Editing by Tassilo Hummel and Gareth Jones)

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