Merkel's conservatives to stick to 'black zero' policy of no new debt

• German Chancellor Angela Merkel's centre-right party wants to stick to its 'black zero' budget policy of no new debt, despite growing pressure at home and from abroad to ditch the fiscal maxim, a party document showed on Monday.
• Merkel's government has managed to raise public spending without incurring new debt since 2014, thanks to an unusually long growth cycle, record-high employment, buoyant tax revenues and the European Central Bank's bond-buying plan.

BERLIN: German Chancellor Angela Merkel's centre-right party wants to stick to its 'black zero' budget policy of no new debt, despite growing pressure at home and from abroad to ditch the fiscal maxim, a party document showed on Monday.

The party board of the Christian Democrats (CDU) is expected to pass a manifesto proposal in which it calls for responsible and solid fiscal policies, according to the document seen by Reuters.

"We therefore endorse the Maastricht treaty, the EU Stability and Growth Pact, the constitutionally enshrined debt brake and the 'black zero' policy (of not incurring new debt)," the document said.

Germany's debt brake allows the federal government to run a small budget deficit every year while the self-imposed balanced budget pledge rules out any new borrowing.

Merkel's government has managed to raise public spending without incurring new debt since 2014, thanks to an unusually long growth cycle, record-high employment, buoyant tax revenues and the European Central Bank's bond-buying plan.

But with the economy slowing and tax revenues waning, the fiscal room to counter a recession is getting smaller. At the same time, Germany's borrowing costs have turned into premiums which means investors are actually willing to pay the German state a bonus for being able to lend it billions of euros.

The powerful BDI industry association last week raised the pressure on Berlin to rethink its budget priorities, saying Germany should ditch its policy of not taking on new debt in light of zero borrowing costs and huge investment needs.

Former German finance minister Wolfgang Schaeuble, the mastermind behind the 'black zero' policy, last Wednesday also called for a reappraisal of Berlin's fiscal policy to meet the challenges arising from climate change and digitalisation.

Schaeuble said politicians should use the fiscal leeway of the constitutionally enshrined debt rules, implying that the policy of no new debt should not be a maxim anymore.

Under the debt brake, the federal government can take on new debt of up to 0.35% of economic output. That would be roughly 5 billion euros ($5.47 billion) in 2020 after special factors such as growth have been taken into account.

The permitted debt would rise to 8.4 billion euros in 2021 and 9.7 billion euros in 2022, according to budget experts in parliament.