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Germany is getting €1 trillion ($1.1 trillion) in additional funding virtually for free after bond markets reacted positively to its “historic” spending bill, Deutsche Bank AG Chairman Alexander Wynaendts said.
Now it needs to spend the money wisely and advance structural reforms to ensure it stays that way, Wynaendts said on Thursday at a panel discussion organized by the Institute of International Finance.
Germany last week unlocked hundreds of billions of euros in debt-financed defense and infrastructure spending, ending decades of austerity and ushering in a new period of deficit spending designed to boost Europe’s biggest economy, modernize creaking infrastructure and rebuild its defenses. Berlin was forced to act after President Donald Trump pulled back from US commitments to European security.
Markets have generally reacted positively to the fiscal shift, which Bloomberg economists say should help bolster growth across the euro region.
“The market has very clearly endorsed” the spending package, which passed its final legislative hurdle last week, Wynaendts said. “You could even say we got a trillion euros at no additional cost.”
Wynaendts said that the sudden abundance of money carries the risk of misallocations after years of underinvestment in defense and disorganized procurement systems.
“Will there be investments not well spent? Absolutely yes, but we don’t have an alternative,” he said.
Germany also must work on structural reforms to ensure that debt-fueled growth become lasting, he said.
“We need regulation reduction, we need tax reform, we need labor law reform. So there’s quite a lot of things that still have to happen for this enormous investment to have a full impact,” Wynaendts said. “We don’t have the time to squander this.”
This story was originally featured on Fortune.com
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Arno Schütze, Bloomberg
