File picture of a cafe in Munich. Germany’s postwar economic model has always been export-led. Image Credit: Agency

Berlin: German Finance Minister Olaf Scholz suggested Germany could muster €50 billion ($55 billion, Dh203.5 billion) of extra spending in an economic crisis, putting a number on a possible fiscal stimulus for the first time.

While Scholz signalled that action by Germany isn’t imminent, domestic and global warning signs are increasing pressure on Chancellor Angela Merkel’s government to consider suspending its balanced-budget policy. They include an economy that shrank in the second quarter and the risk of expanded trade conflict with the US.

Scholz mentioned the number in the context of extra borrowing during the financial crisis more than a decade ago, saying “the last crisis cost us €50 billion, according to my estimates. We have to be able to muster that and we can muster that.

“The biggest problem is uncertainty, including that caused by the Chinese-US trade war.”

A constant target for Trump

Germany’s auto industry has been a frequent target of President Donald Trump and could get hit if he follows through on tariff threats against the European Union. At a recent rally in New England, he said the EU is “worse than China, just smaller.”

German output fell 0.1 per cent in the second quarter. Paired with a slump in business expectations, the data raise the risk that Germany is on the verge of entering a recession, the first in more than six years.

Merkel said last week that the economy is “heading into a difficult phase” and her government will react “depending on the situation”. It was her first suggestion that a more proactive response might be required, though she said she didn’t see an immediate need for fiscal stimulus.

Business leaders and candidates to lead the Social Democratic Party, Merkel’s junior coalition partner, are calling on the government to loosen its purse strings and abandon the zero-deficit policy. Annegret Kramp-Karrenbauer, Merkel’s successor as head of the Christian Democrats, said last week that the party stands by the policy.

“We invented and will continue to defend it,” she said on Twitter.