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EXCLUSIVE-Germany considers 'shadow budget' to circumvent national debt rules - sources

Michael Nienaber

- sources@

* Berlin considers creating new public entities - sources

* They could issue debt to get around strict national rules

* Germany could then profit better from zero borrowing costs (Adds ministry responses, context, background)

BERLIN, Sept 9 (Reuters) - Germany is considering the creation of a "shadow budget" that would allow Berlin to boost public investment above and beyond limits set by its strict national debt rules, three people familiar with the internal discussions told Reuters.

They said officials were considering setting up independent public entities to take on new debt that would not be accounted for in the federal budget. That would allow Germany to boost spending on infrastructure and climate protection up to limits set by the European Union, rather than its national debt brake.

Debt-financed spending by the new bodies would come under the more lenient rules of the EU's Stability and Growth Pact, the sources said, giving Germany more room to take advantage of historically low borrowing costs to boost its flagging economy.

"Norway has its oil, Germany has its credit standing. It's like a national resource," one senior official told Reuters. "If managed wisely, an independent public investment agency could even make money by taking on new debt."

Germany's national debt rules allow for a federal budget deficit equivalent to a maximum of 0.35% of gross domestic product (GDP), which would be roughly equivalent to 12 billion euros ($13.3 billion) each year.

However, once other factors including growth rates have been taken into account, Germany only has the scope to boost new debt by 5 billion euros without breaching its national rules.

EU fiscal rules, however, allow countries to run a bigger deficit if their debt-to-GDP ratio falls significantly below 60% - which Germany's Finance Ministry expects to happen this year.

If that happens, Germany could run a total deficit of up to 1% of its economic output under the EU rules - which means it could take on new debt worth up to 35 billion euros a year.

Some experts say the step would make sense economically as towns are suffering from pent-up public investment needs worth a combined 138 billion euros.

At the same time, German bond yields have turned negative, even for 30-year securities. That means investors are willing to pay Berlin to lend it billions of euros instead of getting interest payments.

A spokeswoman for the Ministry of Economic Affairs and Energy declined to comment.

A spokeswoman for the Finance Ministry also declined to comment on the idea of creating new public bodies.

She pointed to an earlier statement by a deputy finance minister for parliamentary affairs that the government had been increasing public investment in recent years and Berlin did not think there was a lack of public funds. ($1 = 0.9054 euros) (Reporting by Michael Nienaber; editing by Paul Carrel and David Clarke)