Germany backs EU plan to halt budget rules through 2023

Bloomberg

Germany supports a plan to suspend European Union rules limiting deficits and debt by an additional year to the end of 2023, according to officials familiar with the government’s stance.
The European Commission, the EU’s executive arm, proposed on Monday to maintain the so-called general escape clause of the bloc’s Stability and Growth Pact until the end of next year due to the uncertain economic environment created by Russia’s war in Ukraine.
The German government will not stand in the way for the commission’s proposal to be passed and also won’t criticise the decision, said the officials.
Under the rules, which originally had been set aside until the end of this year due to pandemic, national deficits are limited to 3% of gross domestic product and public debt to 60% of output. The commission has the final say in extending the general escape clause.
Germany’s decision to back the commission’s proposal is a departure for the country, which in pre-pandemic times was among the most fiscally frugal nations in the bloc. Former German Finance Minister Wolfgang Schaeuble was derided in countries like Greece during the euro-area debt crisis for insisting on austerity measures in
return for bailout money.
The three parties in Chancellor Olaf Scholz’s ruling coalition agreed that Germany itself will not make use of the proposed suspension of the EU’s fiscal rules, the officials said. Instead, the German government will return to the so-called debt brake in the constitution, which limits new borrowing to a fraction of economic output.
It will be difficult to bring Germany’s federal budget in line with national fiscal rules in 2023, said officials. But the effort won’t jeopardise the government’s pledge to massively increase spending on defense and climate protection due to Berlin’s newly created, off-budget vehicles, including a debt-financed, $107 billion special fund to modernise the army as well as a 60 billion-euro fund to accelerate the green transition.

German Business
Confidence Grows
German business confidence edged higher as companies continued to navigate the fallout from the war in Ukraine and the renewed supply-chain disruptions.
A gauge of expectations by the Munich-base Ifo Institute rises to 86.9 in May from a revised 86.8 in April, though it remained below its long-term average. Economists had predicted a slight decline. An index of current conditions also
increased.
“The German economy has proven itself resilient in the face of inflation concerns, material bottlenecks, and the war in Ukraine,” Ifo President Clemens Fuest said on Monday in a statement. “There are currently no observable signs of a recession.”
Businesses and households are facing surging energy costs and uncertainty about the future supply of Russian fossil fuels as the Ukraine conflict persists. What’s more, there are fresh logistical strains — caused both by the fighting and the sanctions response, as well as new pandemic restrictions in China.
Policy makers have aired concern that the economy is facing stagflation, with little growth and steep price increases. German Finance Minister Christian Lindner has said the threat mustn’t be underestimated, and stock markets have dropped as investors digest the growing headwinds.
An increasing number of European Central Bank officials have still voiced support for an interest-rate increase in July to ensure current record inflation rates don’t become entrenched. German prices jumped 7.8% last month — almost four times the ECB’s target.
The European Commission last week cut its 2022 growth projection for the euro area to 2.7%, while warning that disruptions to Russian natural-gas flows would bring the pandemic recovery almost to a halt. Other studies have suggested that scenario would trigger a recession in Germany, which has a high dependence on imported gas.