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Germany under increasing pressure to boost spending
WASHINGTON, April 13, 2019 (BSS/AFP) – European economic power Germany is
coming under increasing pressure to boost spending to accelerate economic
growth, as its massive surpluses create growing friction with other
countries.
The dispute has simmered since the 2008 global financial crisis but French
Finance Minister Bruno Le Maire warned Friday that widening differences over
economic policy among eurozone countries could undermine the currency union
itself.
“Growing economic divisions among member states are unsustainable in the
long term and could result in the disappearance of the common currency
project,” Le Maire told reporters on the sidelines of the International
Monetary Fund and World Bank Spring meetings.
“Countries with solid budgets must invest more,” Le Maire said. “Those
with the means shouldn’t hoard money for years and years, allowing growth to
deteriorate.”
That was the same message pushed by the IMF itself, which on Friday again
urged Germany to boost spending in order to accelerate growth a raise wages
while reducing its budget and trade surpluses.
“We continue to see a case for eurozone countries that have fiscal space,
like Germany, to increase spending or cut taxes to help boost potential
growth,” Poul Thomsen, head of the IMF European Department, told reporters.
He highlighted Germany’s very large budget and trade surpluses, which
traditionally would have caused the national currency to strengthen,
something that is no longer possible given the common currency in the
eurozone.
That means that even with low unemployment wages are rising very slowly,
Thomsen said.
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– ‘Keep it coming –
While he acknowledged that Germany’s spending increase in 2019 amounts
to 0.7 percent of the economy, which he called “notable,” he said “we need to
see more and keep it coming.”
Amid a “pronounced and worrisome” global economic slowdown, Le Maire
called for a European “growth pact” which would include increased spending by
economies with the “fiscal space” to do so, an allusion to Germany and the
Netherlands.
Those governments should “invest in new projects, innovation, so that
there can be more cooperation and solidarity in the eurozone.”
German Finance Minister Olaf Scholz rejected the criticism and denied his
country was not doing enough to stimulate its economy.
“We have a very expansive investment strategy,” he said at a separate
media briefing.
And Berlin is increasing public investment in infrastructure, education
and the digital economy.
“We did already what everybody is asking us.”
Le Maire said countries like France also should pursue economic reforms
and shore up their finances, something Paris is “determined” to do with
measures “that get results.”
The country is “clear-eyed about France’s economic weaknesses,” he said,
adding, “I hope that every euro area member will have the same wisdom and
clarity. If not, there can be no common future.”
BSS/AFP/HR/1005