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25th Jun 2018

Germany plans extra €10 billion investment to head off EU critics

  • Finance minister Wolfgang Schaueble said the extra spending would not prevent Germany running a balanced budget in 2015. (Photo: World Economic Forum)

Germany has given the first hint that it is prepared to increase public investment to steer a return to economic growth after Angela Merkel's government pledged to invest an extra €10 billion by 2018.

"I will propose to the cabinet that in the course of planning the 2016 budget we allocate additional means for public investment of the order of €10 billion", finance minister Wolfgang Schaeuble told a press conference on Thursday (6 November).

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Schaeuble added that the extra funds would be matched by higher tax revenues in the coming years and would not break his government's promise to run a balanced budget for the first time in over 40 years in 2015. Most of the money is expected to be earmarked for roadbuilding and other infrastructure projects.

Despite its reputation as Europe's economic powerhouse, and its consistently high trade surplus, the German economy has struggled so far this year and is one of the EU countries to be most affected by the bloc's trade sanctions battle with Russia. It is forecast to grow by 1.2 percent this year followed by 1.3 percent in 2015.

It has also come under growing pressure from the European Commission, the United States and a number of EU governments to boost domestic demand to help other eurozone countries recover.

Last month, French prime minister Manuel Valls called on Berlin to match its €50 billion programme of spending cuts with an investment plan of the same size. The International Monetary Fund has also signalled that Germany could increase spending by up to €50 billion without compromising its budget targets.

For its part, the Paris-based OECD think tank urged EU governments to pursue new stimulus measures in its latest 'Economic outlook' report.

EU governments should "employ all monetary, fiscal and structural reform policies at their disposal to address these risks and support growth,” said OECD secretary general Angel Gurria. The OECD also called on the European Central Bank (ECB) to make a "commitment to sizeable asset purchases (“quantitative easing”) until inflation is back on track".

ECB president Mario Draghi stated on Thursday that the bank would increase its balance sheet by €1 trillion over the next two years following the monthly meeting of its Governing Council.

The ECB has recently launched programmes to buy packaged loans and private bonds as well as a new scheme offering cheap money to banks if they promise to increase their business lending.

Draghi hinted that the ECB's decision-makers were prepared to inject further monetary stimulus, telling reporters that the Governing Council was "unanimous in its commitment to using additional unconventional instruments within its mandate".

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