Germany resists pressure to boost spending 

Germany has resisted renewed pressure to increase public spending after the newly appointed European Central Bank (ECB) head Christine Lagarde (pictured) called on EU member states with budget surpluses to relax spending controls. 

Figures are expected to show the eurozone’s worst economic performance since 2013 with inflation slipping further from the ECB’s target.

“This is no situation for special interventions,” said Germany finance minister Olaf Scholz. Lagarde earlier told France’s RTL radio that affluent eurozone members should be stimulating growth.

German spending was “on an expansionary path, state investment is at record levels”, Scholz added. “No federal government has ever invested more.”

There is disagreement within the eurozone, reflected inside the ECB, on how best to stimulate growth. The EU’s growth is still sluggish a decade after the financial crash, while other major economies have returned to solid growth.

Lagarde said co-ordination had saved the euro after the 2008 financial crisis but “since then the countries which have budgetary space have not really made the necessary efforts”.

The former French finance minister, referred to the “chronic budget surpluses” of the Netherlands and Germany, saying they must redress “imbalances” by investing more in infrastructure, education and innovation to stimulate growth.

“Countries, in particular, those with the budget space, have not really made the necessary efforts, and I’m thinking obviously of countries that are in persistent budget surplus right now, the Netherlands, Germany and a certain number of others in the world,” Lagarde said.

“Those that have the room for manoeuvre, those that have a budget surplus, that’s to say Germany, the Netherlands, why not use that budget surplus and invest in infrastructure? … Why not invest in education, why not invest in innovation, to allow for a better re-balancing?”

It is thought Lagarde, a former member of the French national synchronised swimming team, will take a more assertive stance at the ECB as record-low interest rates have failed to stimulate the 19-nation eurozone. 

But Germany under Chancellor Angela Merkel has stuck to its “black-zero” policy that allows no new debt.

Forecasts point to Germany entering a technical recession in the third quarter and outsiders have called on the government to invest more and approve tax cuts to preempt a deeper financial crash.

 

 

 

The newly appointed European Central Bank head Christine Lagarde. Picture credit: Wikimedia 

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