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Germany To Suspend ‘Debt Brake’ On Monday, Clearing Way For Covid-19 Spending Spree

Courtesy of ZeroHedge View original post here.

As German’s industrial auto giants shutter production at their domestic factories as the number of confirmed cases in Deutscheland climbs into 5-digit territory, domestic newsmagazine Handelsblatt revived reports about a coming suspension of Germany’s constitutional ‘debt break’, which would allow Europe’s largest economy to deliver its first major fiscal boost to the economy since 2013, when Europe was reeling from the aftermath of the periphery debt crisis.

That Angela Merkel is planning to invoke a ‘crisis’ clause in the debt-brake provision is hardly a surprise. Both Merkel and her finance minister, Olaf Scholz, have warned that if Berlin dithers, the economic fallout for Europe could be almost unimaginably brutal.

Like many other European officials, Merkel has promised to do “whatever it takes” to fight the virus.

According to Handelsblatt, the Germany government could approve the exception to the debt break at a Monday Cabinet meeting, according to anonymous sources ‘familiar’ with the talks.

The cabinet’s decision must them be approved by a majority of the Bundestag, Germany’s parliament. Officials are also discussing direct aid for small businesses.

Germany’s aversion to deficit spending is reportedly rooted in the hyperinflation caused by Weimar-era money printing, and that quality helped shape the EU’s strict fiscal spending rules, which bar countries from running massive deficits like the US does.

Yesterday, Merkel said Germany is facing its biggest challenge since World War II – an odd choice of examples. But the gravity of her warning was clear to all, especially as the number of cases confirmed in Berlin continues to accelerate.

Germany’s goal is to make sure firms have sufficient liquidity to get through the crisis unleashed by the outbreak, Scholz and Economy Minister Peter Altmaier said in a joint statement released late last week. Scholz additionally said there will be “no limit” to the money available, and that Germany may need to take on additional debt to finance the spending spree.


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