Germany’s Schäuble: Higher Deficits Don’t Create Stronger Economic Growth – Update
BERLIN–Germany’s finance minister Tuesday insisted that structural overhauls and innovation will help boost economic growth and create jobs, dealing a blow other European countries that it might be willing to accept a looser deficit policy.
Wolfgang Schäuble said Europe would “surrender to the world of illusion” by believing that the use of more public money and higher deficits would achieve sustainable growth and permanent jobs.
“Calls in Europe to use more and more public money while accepting higher and higher deficits and debt is leading us astray,” Mr. Schäuble said in the lower house of parliament’s debate on the government’s 2015 budget.
“Growth and jobs aren’t a result of higher deficits, because we shouldn’t have any problems if that was the case… The only way out is innovation, structural reforms, investment, reliable conditions and trust in the sustainability” of public finance.
The comments signal Germany’s continued reluctance to give in to demands from France and Italy to grant them more leeway in achieving their deficit goals and instead spend more money to help generate growth.
Source:wsj.com
“Everybody should adhere to European rules,” he said, adding countries must not only pledge to overhauls but, also, implement them.
Germany–the eurozone’s largest economy and main proponent of the austerity policy in the region–has pushed for other countries to follow its example of implementing structural overhauls and cutting deficits, which Berlin says has helped to create growth, a resilient labor market and an almost balanced budget.
Mr. Schäuble also warned European governments against pinning their hopes on the European Central Bank turning around the anemic eurozone economy.
The ECB on Thursday surprised markets by cutting three interest rates and announcing plans to buy asset-back securities and covered bonds.
In his news conference, ECB President Mario Draghi stressed that in cutting rates and launching new programs to buy asset-backed securities and covered bonds, the central bank wasn’t setting out on an entirely new path–for example, quantitative easing–but merely “strengthening” the measures announced in June.
The eurozone is lagging far behind other big economies such as the U.S. and U.K., whose central banks took more aggressive action in the aftermath of the global financial crisis to support their economies and prevent deflation. This was achieved through large-scale purchases of government bonds and, in the case of the U.S., mortgage-backed securities. The policies, known as quantitative easing, aim to reduce long-term interest rates.
“They [ECB officials] do what they can, but they have basically exhausted their toolbox,” Mr. Schäuble said. “Cheap money also can’t force growth, otherwise we wouldn’t have any problem right now.”
Commenting on the state of the German economy, he said that the economic environment has weakened as a result of geopolitical crises and Germany’s economy has weakened too, but it would be wrong to be overly pessimistic about the outlook.
The government has forecast 1.8% growth for this year and 2% for 2015. The government is due to revise the figures in October.
Chancellor Angela Merkel’s government plans to balance its budget next year for the first time since 1969, after a budget deficit of EUR6.5 billion forecast for this year.
The 2015 spending plan earmarks federal spending of EUR299.5 billion compared with this year’s target of EUR296.5 billion. Last year, the federal government spent EUR307.8 billion.
Source:wsj.com