(Bloomberg) -- German Finance Minister Olaf Scholz said his “expansionary” 2020 budget will help stabilize the sputtering economy without the need to ramp up spending and increase the debt burden.
In a speech to parliament Tuesday, Scholz confirmed Germany will again have a balanced budget next year and said the spending plan will help the nation cope with “great challenges” that include global trade disputes. He said the government will act if the current slowdown morphs into a genuine crisis and that Germany’s solid finances have given the nation plenty of room to maneuver.
“It’s an expansionary budget which includes a great deal of investment and many decisions for the future,” Scholz, whose spending plans were approved in cabinet in June, told lawmakers in Berlin. “We are doing exactly what is right and necessary in these times.”
Pressure is mounting on Chancellor Angela Merkel’s ruling coalition to loosen the purse strings as Europe’s biggest economy flirts with a first recession in almost seven years. Export-dependent Germany is suffering the effects of a global slowdown, exacerbated by trade disputes, uncertainty over Brexit and turmoil in the Middle East.
Gross domestic product shrank 0.1% in the second quarter and economists expect stagnation at best in the three-months through September.
Merkel and Scholz have so far resisted widespread calls for the government to abandon its policy of running balanced budgets, although the Social Democratic finance minister suggested a stimulus package worth 50 billion euros ($55 billion) could be available in the event of a deep recession.
Germany will continue to deliver a balanced budget through 2023, finance ministry projections show. But some members of Scholz’s SPD support taking advantage of extremely low interest rates to issue new debt to fund increased government spending.
Jakob von Weizsaecker, the finance ministry’s chief economist, has set out his vision for an investment program, while Bettina Hagedorn, a deputy finance minister, has said that plans to run balanced budgets through 2023 could be reviewed if economic conditions change.
(Recasts with Scholz comments)