BERLIN: German Finance Minister Olaf Scholz plans to temporarily suspend a government “debt brake” to hand out tens of billions of euros to struggling municipalities, weekly Die Zeit reported on Wednesday.
With years of fat budget surpluses, Germany has long faced calls at home and abroad to loosen its purse strings, but the spread of the novel coronavirus and its likely impact on economic growth have given them new impetus.
“Scholz will present a plan in March,” Die Zeit wrote without citing its sources.
Scholz would need two-thirds majorities in both parliament’s directly elected lower house and the upper house representing the states to suspend the debt brake.
Anchored in the German constitution at the height of the financial crisis in 2009, the rule prevents government from running a deficit of more than 0.35 percent of the gross domestic product in normal times.
Finance Ministry spokeswoman Katja Novak declined to comment on “speculation,” telling AFP “the finance minister will present his proposals for dealing with old debt early this year.”
“At present various options are being discussed,” Novak added.
Scholz has long backed plans to lift a near-unbearable burden of repayments from 2,500 municipalities by shifting €40 billion ($43.5 billion) of their debts to Berlin.
He hopes it would lift a major hurdle to increasing infrastructure spending and eliminating financial and planning bottlenecks in municipalities responsible for projects like roads and schools.
Many of the towns affected are in deindustrializing “rust belt” zones, like Germany’s most populous state North Rhine-Westphalia.
After years of a no-new-debts policy known as the “black zero,” economists and EU partners are increasingly pressuring Berlin to upgrade aging infrastructure and stimulate its flagging economy with new spending.
A manufacturing slowdown in Europe’s top economy and the looming impact of the coronavirus have added urgency to such calls.
What is more, the European Central Bank’s monetary policy is already extremely loose, with negative interest rates and mass bond purchases under a “quantitative easing” scheme.
With little room to maneuver in Frankfurt, eurozone governments are on the hook to stimulate flagging economic growth, especially in case of a potential hefty shock stemming from an unforeseen event like the virus.