Angela Merkel tells IMF lack of money not Germany’s problem

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BERLIN (Sept 11): Chancellor Angela Merkel rejected growing calls at home and abroad to fend off a crisis with increased spending, saying that the problem wasn’t a shortage of money for investment.

Merkel told parliament on the second day of its budget debate that there were sufficient investment projects in the pipeline that needed to be fast-tracked. Her speech comes after Finance Minister Olaf Scholz on Tuesday said Germany would stick to a balanced budget, but was ready to act in moments of a crisis.

"With the investments, and the finance minister touched on that yesterday, it’s currently not a lack of money," Merkel said. "We have hundreds of thousands of apartments that could be built, we have roads, we have digital infrastructure. So, first we need to make sure the money is being spent."

Germany has come under growing pressure to boost spending as it faces the prospect of a recession in the third quarter. The International Monetary Fund renewed its call for action this week, saying Germany shouldn’t wait for an economic shock before boosting public investment

The economy shrank 0.1% between April and June and many indicators are pointing to a further contraction in the third quarter.

The argument in favour of debt-financed stimulus is that Germany’s debt burden has come down dramatically in recent years and that negative interest rates are likely to remain low for a considerable time. Even within the finance ministry, the beacon of German fiscal discipline, the mindset is beginning to change.

Europe’s largest economy has a “broad range” of long-term issues including infrastructure, digitization and the participation of women in the workforce that it could spend money on, Poul Thomsen, the head of the IMF’s European department, said in an interview in Brussels.

“Germany is not constrained by debt levels from pursuing such good fiscal, structural measures,” he said.

Marcel Fratzscher, president of Germany’s DIW economic research institute, also weighed in on Wednesday, favouring a long-term government investment program.

“Instead of complaining about low interest rates, politicians should understand this as an opportunity to invest wisely in the future," Fratscher said. “We need a shift in fiscal priorities away from public consumption toward more government investment."

The 2020 budget was approved in cabinet in June and faces a vote in parliament in November.