(Bloomberg) — Chancellor Angela Merkel said the government will support Germany’s tentative recovery from the fallout of the coronavirus crisis “with all its strength.”
Europe’s largest economy is showing signs of improvement, but the scale of the damage justifies Germany’s unprecedented borrowing and spending, Merkel said in a video statement to Germany’s BDI industry lobby in Berlin on Tuesday. But the powerful group slammed the government for not doing enough to bolster competitiveness.
“Indeed, things have been gradually improving since May,” she said. To support this trend, “new debt under extraordinary circumstances is unavoidable — and justifiable in these times.”
Merkel’s government responded to the crisis this year with an aggressive trillion-euro fiscal response, retreating from years of budget discipline to pull the country out of its deepest recession in decades. The spending will continue in 2021, when Berlin plans 96.2 billion euros ($113.4 billion) in new borrowing, as constitutional debt restrictions remain suspended.
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As Europe heads into the winter months, Germany’s economy has held relatively stable. Unemployment declined for a third month in September, propped up by the government’s wage-subsidy program that has helped support close to 4 million furloughed workers. Merkel’s cabinet has extended the aid, known as “Kurzarbeit,” through the end of 2021.
But as the pandemic flares up again, rising restrictions have curtailed the services sector, and Germany’s Bundesbank expects this year’s recovery to proceed at a slower pace, calling for fiscal support across the 27-member European Union.
Too Much Bureaucracy
Dieter Kempf, the head of the BDI, warned that spending wasn’t enough to fix Germany’s economy and called on the government to clear bureaucratic obstacles and prevent climate targets creating an excessive burden for companies.
“We need a state that creates the framework to make us more competitive,” he said, adding that climate goals are important but that industry needs sufficient time and resources to adjust.
Armin Laschet, one of the contenders to succeed Merkel after she steps down next year, backed that call. On Friday, he plans to present a proposal to the country’s upper house of parliament, with 48 measures that aim to fortify Germany’s economy and streamline its bureaucracy.
The move is part of an effort to bolster his profile. Laschet’s main contender to lead Merkel’s Christian Democratic Union and potentially run for chancellor in next year’s election, is Friedrich Merz.
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The former BlackRock Inc. director is seen by many party delegates as the more business-friendly alternative, although Laschet has years of experience running Germany’s most populous state and industrial heartland.
“A stimulus package is not enough,” Laschet told reporters. “We need to strengthen business and entrepreneurial initiative, particularly by cutting red tape.”
(Updates with comments from BDI, contender to succeed Merkel)
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