Germany’s state governments stepped up calls for infrastructure spending, adding another source of pressure on Chancellor Angela Merkel to boost investment as economic growth falters.
Much like Merkel’s national government, the states are caught between a deteriorating growth outlook and the balanced-budget drive that Germany started in response to the euro area’s debt crisis. It’s making the 16 regions set aside political differences to challenge the status quo, from rich Bavaria to rural Mecklenburg-Western Pomerania in the east, home to Merkel’s electoral district.
A day after the German government lowered its growth outlook, proposals to spend more on projects such as highways in Europe’s biggest economy are on the table at a retreat of state premiers starting today that Merkel plans to attend.
“To unleash growth impulses, additional investment is needed in infrastructure and other future-oriented sectors,” according to a summary of the states’ negotiating position in fiscal talks with the federal government that was prepared for the meeting in Potsdam and obtained by Bloomberg News. The states want a “lasting” funding boost, saying a lack of spending is holding back economic development nationwide. The struggle in Germany parallels the international conflict pitting Merkel and Finance Minister Wolfgang Schaeuble against the International Monetary Fund and countries such as France and Italy that advocate spending to stimulate growth.
Germany cut its forecast as investor confidence fell to the lowest level in two years, the latest in a series of data fueling speculation the country may be facing recession.
Not Flinching
Merkel didn’t flinch, telling lawmakers yesterday that Germany won’t raise public spending and reaffirming her goal of balancing the budget next year, according to a party official who asked not to be named because the session was private.
While Merkel said last week her government is looking at measures that don’t threaten her budget goal, such as spurring investment in digital technology and renewable energy, she and Schaeuble say fiscal leeway is tight. “We are agreed in the German federal government that we must stay the course even in difficult times,” Schaeuble said after a meeting of European Union finance ministers yesterday.
The pressure from Merkel’s Christian Democratic-led bloc in parliament was underscored by lawmakers’ demands for a savings package rather than more spending. Michael Fuchs, her party’s deputy caucus head in parliament, told Bild newspaper that a 1 percent savings effort by every federal ministry would generate 3 billion euros ($3.8 billion) in savings.
“We can’t call on the rest of Europe to save and not do the same ourselves,” Fuchs told Bild.
That attitude carries through to Schaeuble’s talks with the German states, some of which are struggling to follow the federal government’s lead and balance their books by 2020 to meet caps on public spending. Merkel enshrined the so-called debt brake in the German constitution five years ago. Her government isn’t making promises on infrastructure beyond a boost of 5 billion euros ($6.3 billion) in federal spending through 2017 pledged last year, according to the position paper for the state-federal talks.
“It’s the responsibility of the states to finance infrastructure measures of the states,” Merkel’s negotiators say in the paper, which is dated Oct. 10.
Debt Brake
The debt brake, enacted to underpin the euro’s stability, obliges the central government to limit net new borrowing starting in 2016. A similar cap for states kicks in four years later.
Merkel’s government is leaving the door open to joint state-federal debt issued by the federal government at some point, though the paper cites reservations by Bavaria and Saxony, two states ruled by parties in the chancellor’s Christian Democratic bloc. “Consistent budget discipline at the federal and state levels remains indispensable going forward,” Schaeuble’s ministry says in its comments in the position paper.
source: Bloomberg
Much like Merkel’s national government, the states are caught between a deteriorating growth outlook and the balanced-budget drive that Germany started in response to the euro area’s debt crisis. It’s making the 16 regions set aside political differences to challenge the status quo, from rich Bavaria to rural Mecklenburg-Western Pomerania in the east, home to Merkel’s electoral district.
A day after the German government lowered its growth outlook, proposals to spend more on projects such as highways in Europe’s biggest economy are on the table at a retreat of state premiers starting today that Merkel plans to attend.
“To unleash growth impulses, additional investment is needed in infrastructure and other future-oriented sectors,” according to a summary of the states’ negotiating position in fiscal talks with the federal government that was prepared for the meeting in Potsdam and obtained by Bloomberg News. The states want a “lasting” funding boost, saying a lack of spending is holding back economic development nationwide. The struggle in Germany parallels the international conflict pitting Merkel and Finance Minister Wolfgang Schaeuble against the International Monetary Fund and countries such as France and Italy that advocate spending to stimulate growth.
Germany cut its forecast as investor confidence fell to the lowest level in two years, the latest in a series of data fueling speculation the country may be facing recession.
Not Flinching
Merkel didn’t flinch, telling lawmakers yesterday that Germany won’t raise public spending and reaffirming her goal of balancing the budget next year, according to a party official who asked not to be named because the session was private.
While Merkel said last week her government is looking at measures that don’t threaten her budget goal, such as spurring investment in digital technology and renewable energy, she and Schaeuble say fiscal leeway is tight. “We are agreed in the German federal government that we must stay the course even in difficult times,” Schaeuble said after a meeting of European Union finance ministers yesterday.
The pressure from Merkel’s Christian Democratic-led bloc in parliament was underscored by lawmakers’ demands for a savings package rather than more spending. Michael Fuchs, her party’s deputy caucus head in parliament, told Bild newspaper that a 1 percent savings effort by every federal ministry would generate 3 billion euros ($3.8 billion) in savings.
“We can’t call on the rest of Europe to save and not do the same ourselves,” Fuchs told Bild.
That attitude carries through to Schaeuble’s talks with the German states, some of which are struggling to follow the federal government’s lead and balance their books by 2020 to meet caps on public spending. Merkel enshrined the so-called debt brake in the German constitution five years ago. Her government isn’t making promises on infrastructure beyond a boost of 5 billion euros ($6.3 billion) in federal spending through 2017 pledged last year, according to the position paper for the state-federal talks.
“It’s the responsibility of the states to finance infrastructure measures of the states,” Merkel’s negotiators say in the paper, which is dated Oct. 10.
Debt Brake
The debt brake, enacted to underpin the euro’s stability, obliges the central government to limit net new borrowing starting in 2016. A similar cap for states kicks in four years later.
Merkel’s government is leaving the door open to joint state-federal debt issued by the federal government at some point, though the paper cites reservations by Bavaria and Saxony, two states ruled by parties in the chancellor’s Christian Democratic bloc. “Consistent budget discipline at the federal and state levels remains indispensable going forward,” Schaeuble’s ministry says in its comments in the position paper.
source: Bloomberg