German industry raises pressure on Merkel to ditch policy of no new debt

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Germany should ditch its policy of not taking on new debt in light of zero borrowing costs and huge investment needs, the head of the powerful BDI industry association said on Wednesday, raising the pressure on Berlin to rethink its budget priorities.

German Chancellor Angela Merkel’s ruling coalition faces growing calls at home and from abroad to abandon its self-imposed “black zero” budget policy of no new borrowing and instead take on new debt within the limits of the more formal debt brake as a way to help a slowing economy teetering on the brink of recession.

BDI President Dieter Kempf said that the government should use the fiscal leeway of the constitutionally enshrined debt rules and ditch the balanced-budget policy.

“Under the rules of the debt brake, the government could raise between 10 and 12 billion euros a year, which Berlin could use for public investment,” Kempf told members of the foreign press association in Berlin.

The business leader pointed out that the economic circumstances had changed as the economy was faltering.

At the same time, the country was facing massive pent-up investment needs and investors were willing to even pay Berlin a premium for issuing debt as German bond yields across the board turned negative, Kempf said.

Merkel’s ruling coalition last week agreed a package of budget-neutral measures to protect the climate and restore its green credentials, but drew criticism from environmental groups that had hoped it would go further.

Merkel and her Social Democrat Finance Minister Olaf Scholz so far have shown little appetite to abandon their joint pledge to refrain from taking on new debt, though Scholz himself has changed his tone over the past weeks.