UPDATE 1-In rare "wake-up call", Berlin urged to massively boost investment

* Industry lobby group, labour union issue joint pledge

* BDI boss: “Germany must wake up from sleeping phase”

* Labour union head: Berlin risks prosperity of next generation (Adds quotes, finmin reaction, background)

By Michael Nienaber

BERLIN, Nov 18 (Reuters) – Germany’s BDI industry association and the DGB trade union called in a rare joint statement on Monday for the government to rethink its budget priorities and boost public investment to make Europe’s largest economy fit for future growth.

The unusual move by Germany’s most influential business lobby group and the country’s largest umbrella union show how much public debate has shifted in a country long obsessed with its “black zero” budget policy of no new debt.

With the economy barely growing and Berlin’s borrowing costs at record lows, Chancellor Angela Merkel and Finance Minister Olaf Scholz are facing growing pressure at home and abroad to ditch their self-imposed balanced budget pledge, which limits the fiscal room to increase public spending.

“This is not primarily about fighting symptoms of a recession, but rather tackling the more deeply rooted causes of weak growth,” BDI President Dieter Kempf said, adding that the government had a duty to improve Germany as a business location in order to secure long-term prosperity and employment.

Kempf said the government should not only ditch its balanced budget policy, but also think out of the box and consider changes to the constitutionally enshrined debt brake. “Germany must wake up from its sleeping phase,” Kempf said.

Kempf said Berlin should increase public investment in digital and transportation infrastructure by half a percentage point of economic output, roughly 17 billion euros. The federal budget foresees investments of 43 billion euros for 2020.

“OUTDATED, UNDERFUNDED”

DGB head Reiner Hoffmann said a long-term public investment programme was the only way to secure the sustainability of Germany’s growth model and with it, well-paid jobs.

“We can no longer afford to put the prosperity of future generations at risk with such an outdated infrastructure and underfunded education system,” Hoffmann said, adding that more public investment would also strengthen social cohesion and promote equal living conditions across the country.

Germany’s state-owned development bank KfW has estimated that municipalities across the country have unmet public investment needs of about 138 billion euros.

A finance ministry spokeswoman said the government was already providing a record sum for investment. “If we make it right, we can do this also without new debt,” she added.

Boosting German investment would be positive for the broader euro zone. The new president of the European Central Bank, Christine Lagarde, has singled out Germany as a country that could deploy its budget surpluses to help growth in the bloc.

Germany’s debt brake, enshrined in the constitution, allows a federal budget deficit of up to 0.35% of gross domestic product, giving Berlin only limited scope to increase new debt.

Officials are therefore considering the creation of independent public investment agencies which could take on debt without falling foul of the strict national spending rules, three people familiar with the matter told Reuters in September.

(Reporting by Michael Nienaber Additional reporting by Christian Kraemer Editing by Catherine Evans)

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