Germany: Green Stimulus To The Rescue?

This week will show whether Germany can actually do fiscal stimulus.

A modern housing block in Milan, Italy

Over to you, Berlin. Next to the monetary stimulus 'big bang' and Mario Draghi’s new 'as long as it takes' proclamation, this was the main message of last week’s European Central Bank meeting. The call for fiscal stimulus has never been louder. And this week will show whether the eurozone country with the deepest pockets finally plans to empty them.

Black zero forever

Fiscal stimulus in Germany? No way. This has been a common reaction by many commentators and financial market participants over the last few years. The so-called debt-brake, an almost obsessive focus on fiscal surpluses, and frequent denial of the need for any public investment programme have led to many frustrations and disappointments. However, since the start of the year, the mood in Germany has gradually changed. It started with more conservative economists, who suggested changes to the constitutional debt brake to make room for investments, then reached mainstream media outlets and finally even politicians in Berlin have started to contemplate some fiscal stimulus (though no members of the government). The recent downswing of the economy has also clearly played an important role in this development.

Unfortunately, when German finance minister Olaf Scholz presented the federal budget last week, hopes for fiscal stimulus were indeed undermined once again. Remember that the federal budget is not the total budget used in fiscal surveillance under the Stability Pact. However, Scholz’s budget plans clearly lacked ambition. The government is sticking to its plan of a balanced budget until 2023. The so-called 'black zero' stands. Public investment is projected to increase by a meagre EUR0.9 billion next year and stay constant thereafter.

Green stimulus to the rescue

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