Global Daily – German fiscal stimulus more fantasy than reality

by: Aline Schuiling

Euro Macro: Germany’s finance minister plays down the need for extra fiscal stimulus  –  Germany’s finance minister Olaf Scholz spoke in parliament about the government’s 2020 budget today. The budget will be discussed in parliament up until Friday and the final outcome will be presented at the end of November. According to reports in the German press, Mr Scholz stated that Germany was prepared and able to counter an economic crisis with ‘many, many billions of euros’, but that that he did not consider Germany to be in an economic crisis. According to Mr Schulz the German economy had cooled down mainly due to the weakening of the global economy and the consequences of the uncertainties related to Brexit. Mr Scholz repeated that the federal budget would be balanced and that no new debt would be issued next year, as planned. The draft 2020 budget (presented in March 2019), includes a rise in federal government spending by 1.7%, mainly by raising support for low and middle income families and by higher spending on defence and infrastructure. Although government income probably will be lower than projected due to the economic downturn, reports in the German press suggest that lower tax income could be largely compensated by lower interest payments on government debt next year.  Based on early indications, we think the fiscal stimulus will be just 0.3% GDP next year compared to 0.5% GDP this year.

Separately, the German government has planned to present its long-term climate plans on 20 September. These are part of the European Energy Union Strategy, which has set binding climate and energy targets for 2030, and has required each member state to present a National Energy and Climate Plan (NECP) before the end of this year. According to leaks to the press, Germany’s government is considering to set up special agencies that could take on new debt to invest in climate protection or infrastructure, without breaking the national rules for a balanced budget. Indeed, in Germany’s draft NECP and the EC’s comment on this (published in June 2019) it is mentioned that ‘the plan provides an estimate of significant investment needs of EUR 50bn until 2030 (annually around 0.1% of current GDP). However, only few additional elements on investment needs and expenditure, national, regional and Union funding sources, market risks and barriers are reflected, therefore the draft plan does not yet fully take advantage of the role NECP’s can play in providing clarity to investors and attracting additional investments in the clean energy transition’ . In other words, the government might give more clarity on its plans to set up any special funds on 20 September. (Aline Schuiling)