BERLIN: German Finance Minister Wolfgang Schaeuble rebuffed calls for Berlin to spend more to boost the eurozone economy, telling parliament yesterday that painful structural reforms were the best way to return Europe to growth.
Germany is under growing pressure from partners like France and Italy to loosen the fiscal reins and use its overflowing government coffers to ramp up public investment.
Worried about the risks of Japan-like deflation, the European Commission, International Monetary Fund and European Central Bank President Mario Draghi are now urging the same.
But in a budget speech to the Bundestag lower house of parliament, Schaeuble insisted it was up to each country to do its reform “homework” and played down the benefits of more public investment.
“We mustn’t allow ourselves to entertain the illusion that we can solve our problems using more and more public funds and ever higher deficits,” he said.
“Calls in Europe to use ever more public funds and higher deficits and debts are misleading. Growth and jobs are not created through ever higher deficits - otherwise we would have no problems now.”
The comments come against a backdrop of rising concerns in Germany itself about the state of the domestic economy, which some economists argue is beginning to show cracks from a decade of underinvestment in roads, bridges, factories and schools.
The cover of the most recent issue of German weekly Der Spiegel pictured shiny German cars, homes and skyscrapers perched precariously on a rotting foundation under the headline “The Crumbling State”.
Statistics show that total annual investment levels in Germany are currently around 17 percent of GDP - below the average of roughly 21 percent in other industrialised countries.
In response, both Schaeuble and Economy Minister Sigmar Gabriel have been exploring ways to encourage the German private sector to invest more. Schaeuble is also expected to present joint proposals on boosting investment with his French counterpart Michel Sapin at a meeting of European finance minister in Milan later this week.
But it was clear from his comments in the Bundestag that Schaeuble is unlikely to abandon the aggressive budget goals agreed by German Chancellor Angela Merkel’s “grand coalition” last year.
Under the “debt brake” it wrote into its constitution in 2009, the federal government is obliged to cut its structural deficit to no more than 0.35 percent of gross domestic product by 2016.
Emboldened by a surging tax take and low borrowing costs however, the ruling parties vowed in December to consolidate even faster - achieving a structurally balanced federal budget in 2014, roughly two years faster than the debt brake requires.
Reuters
