Germany says it could spend extra $55 billion if crisis hits

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Published: August 18, 2019 7:42:24 PM

Finance Minister Olaf Scholz suggested Germany could muster 50 billion euros ($55 billion) of extra spending in an economic crisis, putting a number on a possible fiscal stimulus for the first time.

Scholz mentioned the number in the context of extra borrowing during the financial crisis more than a decade ago (Reuters/File Photo)

Finance Minister Olaf Scholz suggested Germany could muster 50 billion euros ($55 billion) of extra spending in an economic crisis, putting a number on a possible fiscal stimulus for the first time. While Scholz signaled that action by Germany isn’t imminent, domestic and global warning signs are increasing pressure on Chancellor Angela Merkel’s government to consider suspending its balanced-budget policy. They include an economy that shrank in the second quarter and the risk of expanded trade conflict with the U.S.

Scholz mentioned the number in the context of extra borrowing during the financial crisis more than a decade ago, saying “the last crisis cost us 50 billion euros, according to my estimates.”

“We have to be able to muster that and we can muster that,” he said while answering questions from the public in Berlin on Sunday. “The biggest problem is uncertainty, including that caused by the Chinese-U.S. trade war.”

German output fell 0.1% in the second quarter. Paired with a slump in business expectations, the data raise the risk that Germany is on the verge of entering a recession, the first in more than six years.

Merkel said last week that the economy is “heading into a difficult phase” and her government will react “depending on the situation.” It was her first suggestion that a more proactive response might be required, though she said didn’t see an immediate need for fiscal stimulus.

Business leaders and candidates to lead the Social Democratic Party, Merkel’s junior coalition partner, are calling on the government to loosen its purse strings and abandon the zero-deficit policy.

Scholz on Sunday confirmed speculation that he’s a candidate for the SPD chairmanship, which will be decided at a party convention in December.

Der Spiegel magazine reported on Friday that Merkel’s government is ready to back off its balanced-budget policy and expand borrowing if the economy slides into recession.

Scholz said there would be fiscal leeway in a crisis because Germany has reduced its national debt to less than 60% of gross domestic product in recent years.

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