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The Journal Gazette

Friday, September 20, 2019 1:00 am

Germany reluctant to spend as recession looms

DAVID McHUGH | Associated Press

FRANKFURT, Germany – A recession looms for Germany, and the European Central Bank is pleading for governments to spend more to revitalize economic growth. Yet despite having the luxury of borrowing money for less than nothing, the German government is keeping a tight rein on its finances.

A debate over Germany's devotion to budget austerity is intensifying as the outlook for the economy dims and public pressure grows to address global warming. Today, the government will unveil measures that could include billions in incentives and spending to make the economy more environmentally friendly.

“The call for fiscal stimulus has never been louder,” said Carsten Brzeski, chief economist for the bank ING Germany. “And this week will show whether the eurozone country with the deepest pockets finally plans to empty them.”

The slowdown across Europe, blamed largely on the U.S.-China trade conflict and uncertainty about Brexit, is putting a sharp focus on Germany's devotion to the “Schwarze Null,” or “black zero,” which refers to the policy of balancing the budget – the zero – with at least a small surplus to keep it in the black.

The debate over government spending policy affects the entire 19-country eurozone, since more government outlays by Germany and other fiscally sound countries such as the Netherlands could help support growth by building new infrastructure, such as roads, rail lines or high-speed internet, or by gathering less in taxes.

The German government has shown little willingness to change its stance. It has ignored repeated pleas from the head of the European Central Bank, Mario Draghi, who said last week it was “high time” for government spending to take over as the main tool of economic policy.

The central bank announced interest rate cuts and bond purchases in an attempt to ward off a downturn.

The government argues it's important to reduce debt while the economy is growing and not to burden future generations.

German Finance Minister Olaf Scholz submitted a balanced draft budget of $400 billion for 2020 last week, and Chancellor Angela Merkel said in a speech before the German Taxpayers' Federation that the government was sticking to its balanced budget, “not as a goal in itself, as we are often accused of doing, but because clear economic reasons and fairness aspects argue for that.”