January 8, 2020 / 12:25 PM / 13 days ago

German balanced budget policy wouldn't make sense in downturn - Ifo

BERLIN, Jan 8 (Reuters) - Germany’s ‘black zero’ balanced budget policy would no longer make sense in the event of a downturn, the head of the influential Ifo economic think tank said on Wednesday in a fresh blow to the fiscal doctrine embraced by conservatives.

Many of Chancellor Angela Merkel’s conservatives are committed to the ‘black zero’ policy of not contracting new debt but the new leaders of their Social Democrat (SPD) coalition partners have challenged the policy.

“There are still surpluses in the federal budget, but they are lower, and I don’t think from an economic point of view it makes sense in a downturn, if it comes - we don’t expect it to - but if it comes it makes no sense to stick with this black zero,” Ifo chief Clemens Fuest told reporters.

“What is not going to happen is that Germany now launches a major economic stimulus programme, providing major stimulus to the euro zone economy,” he added. “Germany bringing down its debt is very sensible because of the demographic situation.”

Merkel’s conservatives have vowed to stick to the ‘black zero’, an attractive policy to many risk-averse voters in Germany, where the national psyche is still scarred by the experience of hyperinflation in the 1920s.

However, their eagerness to ensure sound finances is seen by some economists as going too far.

Last month, Jens Weidmann, chief of the Bundesbank, which earned a reputation as a pillar of monetary stability that underpinned Germany’s post-war ‘Wirtschaftswunder’ (economic miracle), said the black zero should not become a fetish.

Reporting by Paul Carrel Editing by Michael Nienaber

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