Chancellor for Germany, Angela Merkel has announced that the government is sticking to its policy of maintaining a balanced budget for the near future. The announcement cut into expectations of a fiscal stimulus in the largest economy of Europe.

Merkel was addressing an event which was conducted by the German Taxpayers Federation: “As a federal government, we take seriously the responsibility for a solid budget policy. And I can assure you that we are sticking to the goal of a balanced budget.”

The announcement went contrary to the earlier announcement made by the country’s finance minister Olaf Scholz, who said that the German government was preparing to pump billions of Euros into the economy to fight the major slowdown in growth, and that it was important for Germany to take bold measures to combat the threat of climate change before time ran out.

On Tuesday, the yield for the country’s 30 year government bond rose to positive values for the first time in more than a month. This rise was attributed to high expectations of fiscal stimulus in addition to growing uncertainty about whether the ECB would initiate asset purchases at this time.

SPD and Conservatives Tussle Over Spending Rules

Angela Merkel has emphasized on the importance of holding on to the tight fiscal approach owing to the growing size of Germany’s ageing population: “I always say in international talks that, given our demographic situation, this issue is much more virulent and important for us than perhaps in other countries with different demographic developments.”

On the other hand, Olaf Scholz is a member of the Social Democrats, who are the junior partners in the coalition led by Merkel from the Conservatives. The comments by Merkel are indicating that the Conservatives could resist moves by the SPD to loosen the government’s purse strings too much in an effort to combat the downward spiral in the economy.

Berlin is likely to establish independent public bodies to boost investment for essential parts of the economy and take on debt without violating national spending rules.

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