‘Things will become more difficult:’ Merkel tries to sell debt-averse Germany on her ambitious COVID spending plan

August 28, 2020, 12:40 PM UTC

Chancellor Angela Merkel warned the coronavirus crisis will get worse before it gets better and that the fallout will test Germany’s finances for months if not years to come.

The long-time leader of Europe’s biggest economy was short on comforting words, saying that beating the disease hangs on the uncertain pace of developing and disseminating a vaccine—a process that could take 12 months or more. As the summer draws to a close and people are forced indoors, the situation is likely to get worse, she said during her annual summer address.

“I am firmly convinced that it is a good decision to take on a high degree of debt because anything else would mean we would be in the grip of the pandemic for a lot longer,” Merkel said Friday in Berlin. “In retrospect, I’m happy we didn’t succumb to the sweet poison of borrowing in good times,” giving Germany more resources to fight the crisis now.

The wide-ranging briefing was one of her last summer press conferences before she steps down after 16 years in power following elections next fall. She made it clear that the Covid-19 crisis will dominate the remainder of her political career, opening the event with a personal appeal to Germans in which she thanked them for their sacrifices but warned that more would be needed.

“There are indications that things will become more difficult in coming months,” she said. “It’s serious, unchanged serious. Continue to take it seriously.”

‘Extraordinary’ Times

While Merkel has been praised for her handling of the pandemic, cracks have started to appear. She struggled to get state leaders aligned on response measures as infection rates rising again. On Thursday, the chancellor urged Germans to avoid travel to virus-hit areas like the U.S., and warned that restrictions on family gatherings may still come.

Merkel’s crisis management has been accompanied by her government’s historic decision to abandon its balanced-budget policy, suspending constitutional debt limits as part of a massive stimulus push. She was also a driving force behind the European Union’s recovery fund, which allows the bloc to pool borrowing for the first time.

“If extraordinary circumstances don’t make it possible to act in an extraordinary way, then you’re doing something wrong politically,” she said, adding that the pandemic will challenge Germany’s financial capacity because of the uncertainty over when it will end.

While she defended Germany’s borrowing binge, Merkel showed that her government aims to maintain as much budget discipline as possible. The country will get around 22 billion euros ($26 billion) from the European Union’s recovery fund, which she helped to create. Rather than use the funds for new initiatives, most of the money will be spent on existing programs under its stimulus plan.

‘Back in Gear’

The country has to work hard to “maintain our economy as much as possible or get it back in gear again,” she said, adding that Germany also needs to focus on issues such as climate change and digitalization that will impact its future competitiveness.

While the pandemic dominated Friday’s press conference, Merkel is also battling geopolitical tensions. Germany’s relations with Russia have taken a hit after the alleged poisoning of opposition leader Alexey Navalny, who is being treated at a Berlin clinic close to where the news conference is being held.

She voiced concern about the possibility of Russia sending troops into Belarus after President Vladimir Putin said the Kremlin has prepared a cadre of police officers to assist the country if necessary. She said that tensions will continue to accompany German-Russian relations in the coming months but there’s no need to harden her stance.

Merkel’s Other Main Points
Won’t change policy on Russia; goal is to maintain good relationship
Rejects U.S. attempts to halt Nord Stream 2 pipeline, wants project completed
Will seek EU-wide response if tests prove Navalny was poisoned
Regrets resignation of Japan Prime Minister Shinzo Abe, who always defended multi-lateralism
Defends decisions on immigration, would mostly do same again

On the domestic front, Merkel has tried to sidestep discussions about her successor, but has been drawn into the jockeying by appearing in recent weeks with potential contenders from her conservative Christian Democratic-led bloc: North Rhine-Westphalia’s premier Armin Laschet and Bavaria’s Markus Soeder.

Meanwhile, Finance Minister Olaf Scholz has already been declared the chancellor candidate for the Social Democrats, and campaigning has seeped into her fraught coalition.

Merkel, who was in quarantine earlier this year after contact with a doctor who later tested positive, usually takes a walking holiday in the mountains of Italy’s South Tyrol, but Covid-19 quashed those plans, so Merkel kept it local and vague, saying only that she would spend her summer vacation this summer in Germany.

Asked on Friday what she regrets about the containment restrictions, she said: “Mostly I miss the spontaneity in contact with other people.”