German economics minister Robert Habeck has proposed a multibillion State stimulus plan to revive the country’s moribund economy and promote climate-friendly industrial transformation.
After two years of recession and a third looming, Mr Habeck’s “Germany Fund” plan would see the state contribute 10 per cent on top of company investments, offset against company tax liabilities or paid out in cash if the firm is not profitable.
The Green minister’s 14-page position paper – yet to discussed, let alone agreed, with his two coalition partners – argued that Germany was trapped in a vicious circle of low growth and a tight fiscal corset.
“There’s too little leeway in the budget to enable private and public investment on a significantly larger scale than today,” wrote Mr Habeck. “If business would invest more, this would unleash a big boost for the national economy.”
His plan – for a “mid three-digit billion” stimulus over five years – came a day after the IMF cut its Germany growth forecast to zero in 2024 and Chancellor Olaf Scholz was berated by business leaders for his government’s economic record.
A government spokesman said the paper was not co-ordinated with Mr Scholz, but it soon found the support of leading figures in his Social Democratic Party.
The Habeck proposals echo calls from leading economists and foreign partners for Germany to reform its so-called debt brake rule, which restricts annual structural deficits to 0.35 per cent of gross domestic product.
Mr Habeck acknowledged that the new programme would be debt-financed, saying he “didn’t see any other realistic political option”. However the economics minister expressed hope that the fund’s limited volume and time frame would allow it operate outside the debt brake.
The prospect of additional borrowing is a red rag for the liberal Free Democratic Party (FDP), which controls the federal finance ministry and has pinned its political survival in next year’s federal election on maintaining Germany’s tight fiscal corset.
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On a visit to New York, FDP federal finance minister Christian Lindner was cool on the Habeck proposals, insisting that additional economic reforms were the best way to boost German competitiveness.
“The government needs to raise its own level of ambition in our economic reforms,” he said.
The FDP scepticism was shared by leading business lobby groups, which variously called the proposal a “further smoke screen” and suggested tax cuts for businesses would be simpler and more effective as a stimulus.
The Habeck fund proposal echoes papers circling for years among German economists, many of whom welcomed the proposals as a more targeted stimulus than blanket tax breaks for companies. Some warned of new bureaucracy and unclear financing details.
“Robert Habeck shows that he has understood where Germany’s problems lie,” said Prof Michael Hüther, director of the German Economic Institute.
For Prof Moritz Schularick, of Kiel Institute for the World Economy, “the ambitious paper focuses – rightly – on strengthening the German economy on the supply side in order to increase growth and competitiveness”.
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