BERLIN: A board of expert economists known as the “Wise Men” advised the German government Wednesday to loosen the country’s tough no-new-debt policy “in case of a broad, deep recession”.

Sticking to the so-called “black zero” target during a deep downturn “could block the effects of the automatic stabilisers” that kick in when economic activity slows, said the advisory council.

But they add that Germany is not yet in a situation where relaxing the policy would be justified.

The economists’ complaint — buried on page 87 of the 557-page document — is that sticking strictly to the policy during a crisis would prevent politicians from allowing tax income to fall even as spending increases, for example on higher unemployment insurance payouts.

While Chancellor Angela Merkel said the government received the report with “interest”, she did not hold out hope of fulfilling the experts’ wishes.

“You say clearly that a balanced budget and plenty of investment are important, if I understand rightly,” she told them.

Two rules underpin German budget discipline, which has been increasingly under fire in recent months.

A “debt brake” written into the constitution during the financial crisis bans Berlin from taking on more than 0.35 percent of GDP in debt in any one year.

Meanwhile government budget policy under Merkel has stuck to the “black zero” of absolutely no new debts since 2014.

In their report, the experts said the debt brake was “an important signal to markets and to European partners”.

But they add that “it does not close the door to taking on new debt” and “leaves options open to increase public investment”.

“The ‘Wise Men’ are sending a wake-up-call to politicians to boost growth,” the Federation of German Industry (BDI) said in a statement.

“The state must do more...the best time for reforms and investment is now,” the body added.

Germany’s European partners, international organisations and the European Central Bank have also called for months on Berlin to reduce budget surpluses and invest more as the economy slows.

Forecasts now call for German growth of 0.5 percent this year and 0.9 percent in 2020.

“Countries with chronic budget surpluses like the Netherlands and Germany”, need to increase spending to redress “imbalances” in the eurozone, new ECB boss Christine Lagarde said last week.

The experts shot back in their report Wednesday, saying “it would have been better if the ECB had desisted from new government debt purchases”.

Frankfurt policymakers agreed last month to restart “quantitative easing” (QE) bond-buying from November 1, provoking rarely-seen discord among central bankers.—AFP