By Paul Carrel
BERLIN (Reuters) – German Chancellor Angela Merkel said on Tuesday her government was sticking to its balanced budget policy, tempering expectations for fiscal stimulus in Europe’s largest economy.
“As a federal government, we take seriously the responsibility for a solid budget policy,” Merkel told an event organized by the German taxpayers’ federation. “And I can assure you that we are sticking to the goal of a balanced budget.”
Earlier, Finance Minister Olaf Scholz said Germany was ready to pump “many, many billions of euros” into its economy to counter any significant slowdown in growth and the country must take bold measures to fight climate change before it’s too late.
Germany’s 30-year government bond yield rose into positive territory on Tuesday for the first time in over a month, lifted by expectations for fiscal stimulus and uncertainty over whether the ECB will launch asset purchases this week.
But Merkel stressed the importance of taking a tight fiscal approach given Germany’s ageing population.
“I always say in international talks that, given our demographic situation, this (debt) issue is much more virulent and important for us than perhaps in other countries with different demographic developments,” she said.
Scholz is a member of the Social Democrats (SPD), junior partners in the ruling coalition led by Merkel, a conservative.
He said Germany was in a position to do more if an economic crisis hits thanks to its solid budget planning and rigid policy of not taking on new debt.
Merkel’s comments suggest her conservatives could resist any moves by the SPD-led Finance Ministry that they believe go too far in loosening the purse strings to fight any downward economic spiral.
The conservatives regard the government’s so-called “black zero” balanced budget policy as indispensable, the leader of Merkel’s Christian Democrats (CDU) said late last month.
Reuters reported on Monday that Berlin may set up independent public bodies to take on new debt and boost investment in key parts of the economy, without falling foul of strict national spending rules.
Germany’s economy contracted 0.1% in the second quarter and weak data since has fueled concerns that Europe’s biggest economy could shrink again between July and September and tip the country into recession for the first time since 2013.Exporters have long been the driver of Germany’s economic growth but they are struggling in the face of a global slowdown, rising trade tensions and growing uncertainty about Britain’s chaotic exit from the European Union.
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