2019-08-26 Bloomberg Businessweek

◼ECONOMICS BloombergBusinessweek August 26, 2019

CanGermanyLearn

toLove

Sti

mu

lus?

29

● Thecountryis takingtentativestepstowarda
programtoreviveitsflaggingeconomy

“Economicstimulus”is somethingofa dirtyphrase
inGermanpolicycircles.Sincea splurgewhenthe
countryreunifiedin1990,thegovernmenthasonly
oncedeliberatelyrampedupspendingtorevive
growth.Thatwasintheaftermathofthe 2008
financialcrisis,whenBerlinunleasheda €50bil-
lion($56billion)packagethatincludedsubsidies
forcarbuyersandsupportforcompaniesstrug-
glingtomakepayroll.
Nowpressureisbuildingbothathomeand
abroadforthefamouslyfrugalGermanstoopen
thepursestringsoncemore.Aftera dropinorders
forcarsandindustrialequipmentthissummer,as
wellasa stringofdisappointingcorporateearn-
ingsreports,theBundesbankissueda warningon
Aug. 19 thatEurope’slargesteconomycouldbe
abouttotipintoa technicalrecession(twoconsec-
utivequartersofnegativegrowth).
ChancellorAngelaMerkel’scoalitiongovern-
mentis increasinglyunpopular,whichcouldmake
it difficulttomusterpoliticalsupportforending
analmosteight-yearrunofbalancedbudgets.
AlongwithgivingGermanythemoralhighground
fromwhichtolecturemoreprofligatepeersinthe
EuropeanUnion,thecountry’scommitmenttofis-
calrectitudehasallowedit toparepublicdebtto
60%ofgrossdomesticproduct—thelowestofany
majorEuropeaneconomy—from83%in2010.
Speakingata townhalleventinthenorthern
cityofStralsundonAug.13,Merkelacknowledged
thattheeconomyissputtering,saying “we’re
headingintoa difficultphase,”andaddedthather
administrationwillreact“dependingonthesitu-
ation.”FinanceMinisterOlafScholzhassaidpub-
liclythatthegovernmentcanmustera €50billion
stimulus again if needed. Discussions are already
underway on what such a program might include,
according to two people who asked not to be iden-
tified because the conversations are private.
“Considering that industrial weakness has now
persisted for one and a half years, it is remarkable
how slowly the debate has moved so far,” wrote
Greg Fuzesi, an economist at JPMorgan Chase &
Co., in a recent note to clients. Indeed, German

officials have stuck with their 2019 growth forecast

of 0.5% so far, even as economists at investment

banks have been paring theirs.

The hurdles for getting a stimulus program

approved are high. Under the constitution, the

lower house of parliament must first declare a cri-

sis if the government is to issue debt beyond the

normal guidelines. Without a widespread sense of

malaise, such a move could be difficult to justify.

Policymakers are reviewing the 2009 playbook

to figure out which policies might be worth revisit-

ing. It’s partly an issue of timing: Applying stimulus

too soon could fuel imports and savings rather than

bolster industrial output and protect jobs. Here’s a

quick run-down of what’s possible, based on inter-

views with seasoned Germany watchers.

The country ranks highly overall in the World

Economic Forum’s global competitiveness index

but falls short in areas such as road quality and

internetconnectivity.Toaddressthosegaps,

Berlincouldcommittohigherinvestmentforthe

next 15 to 20 years,saysChristianOdendahl,chief

economistattheCentreforEuropeanReform

inBerlin.

Tax cuts are a key ingredient in almost any

stimulus plan. Christian Schulz, an economist at

Citigroup Inc., says Germany could follow the U.K.’s

example of 2008 and temporarily trim its sales tax

to give consumption a boost. Reducing income

taxes, on the other hand, would backfire, accord-

ing to Odendahl, because it would prompt federal,

state, and local governments to curtail spending to

offset the drop in revenue.

The government could revive a 2009 cash-for-

clunkersprogramthatofferedconsumers€2,500

rebatesforreplacingoldercarswithmorefuel-

efficientmodels.Aswellasaidinga keyindustry—

one whacked by the diesel scandal and trade

tensions—the initiative would dovetail with the coun-

try’s drive to accelerate the switch to more environ-

mentally friendly energy sources. Also, authorities

are already considering options such as incentives

to improve the energy efficiency of homes.

Merkel’sadministrationcould alsochoose

tostandpat.Themostrecentbudgetsetsaside

morethan€150billion for infrastructure, educa-

tion, housing, and digital technology over the next

four years. Berenberg economist Florian Hense

reckons that provides Europe’s largest economy

with a boost equal to 0.4% of GDP, which he says

should be enough for now. �Birgit Jennen and

JanaRandow,withPiotrSkolimowski

THEBOTTOMLINE TheGermangovernmentis debatingwhether

todeploystimulusmeasuresthatcouldaddupto€50billion to

counter a likely recession.

Q2’13 Q2 ’19

4%

2

0

● Germany GDP, year-

over-year change

Q1’04 Q1 ’19

90%

75

60

● Governmentdebt as a

shareofGDP

Germany

Euro-area average