German balanced budget policy should not be a fetish - Bundesbank chief - British Herald
September 23, 2020

German balanced budget policy should not be a fetish – Bundesbank chief

BERLIN- Germany does not need an economic stimulus package and its ‘black zero’ balanced budget policy is useful for achieving sound finances but should not become a fetish, the head of the national central bank told the Sueddeutsche Zeitung.

“As a political budgetary objective, the black zero fulfils the pedagogical purpose of ensuring sound finances. This has been achieved so far. Of course, the black zero should not be turned into a fetish,” Jens Weidmann said in the interview published in the newspaper’s online edition.

Many of Chancellor Angela Merkel’s conservatives are committed to achieving a balanced budget without issuing new debt but the new leaders of their Social Democrat (SPD) coalition partners have challenged the policy.

Weidmann said there was nothing wrong with using short-term budget policy as room for manoeuvre to bolster economic conditions via investment or relief for households, but added: “We don’t need a stimulus package.”

Europe’s biggest economy has been going through a soft patch as its export-oriented manufacturers struggle against a backdrop of trade friction, an ailing car industry and uncertainties over Britain’s planned departure from the European Union.

However, the mood among German investors improved far more than forecast in December, with an unexpected rise in October exports boosting hopes for an upturn the economy.

Weidmann, who sits on the European Central Bank’s policymaking Governing Council, said in the interview that inflation would pick up to the point where interest rates can rise.

“But realistically this will take some time,” he added.

The ECB targets inflation at just below 2% but has undershot this mark since 2013 and some argue that fundamental factors that guide inflation have changed, keeping a permanent lid on prices.

Asked about the idea of “helicopter money” – sending money directly to citizens – Weidmann said: “I don’t think much of helicopter money.”

(Content and photos syndicated via Reuters)

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