The slump in German growth could force Angela Merkel to ditch her long-running opposition to government borrowing.
Germany’s ‘debt brake’ law forces its leaders to run balanced budgets, rather than running up deficits. But with an economy struggling, and borrowing costs extremely low, there’s a strong argument for tapping the bond market to fund more investment.
As Marija Veitmane of State Street put it on Bloomberg TV this morning:
We are getting to a point where the German government has to do something to stimulate the economy.
Yesterday, Merkel hinted that she could loosen the purse strings, telling a town hall meeting that her government would take action if needed.
The chancellor said:
“It’s true, we’re heading into a difficult phase....We will react depending on the situation.”