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In Washington, Germany pressed to do more for global growth

Saturday, October 8, 2016 - 09:25
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Pressure is mounting on Germany from the international community to do more to boost global growth by raising spending, just as it moves to assume the leadership of the powerful Group of 20.

[WASHINGTON] Pressure is mounting on Germany from the international community to do more to boost global growth by raising spending, just as it moves to assume the leadership of the powerful Group of 20.

Europe's economic power was told in no uncertain terms during the IMF-World Bank meetings in Washington this week that it is expected to lead the effort to pull world growth out of its slump.

"We believe that some countries have fiscal space. Well if so, they should use it," said Christine Lagarde, managing director of the International Monetary Fund.

"We are certainly including in that category countries like Canada, like Germany, like Korea," she added.

Ms Lagarde had until now only made general appeals to the world's top economies for fiscal stimulus in the name of global growth, which the IMF forecasts will be a tepid 3.1 per cent this year.

"This is the first time she has explicitly pointed to Germany," said a European source who spoke on condition of anonymity.

Ms Lagarde went even further, saying that the tax cuts announced by the government of Chancellor Angela Merkel were not enough.

"This is clearly part of, we hope, a larger packet that will exploit the fiscal space that Germany has available," she said.

Low interest rates allow "countries like Germany" to tap capital markets cheaply to develop infrastructure, she added.

The rise in pressure came as G20 finance minsters also met in Washington, challenged to find ways to strengthen the world's economy.

Currently led by China, the G20 will hand its presidency over to Germany in December.

A source close to the talks on the G20 agenda said that, during a dinner on Thursday, the United States also directly challenged Berlin to spend more to boost growth.

"The United States chose this moment to pressure Germany so that it will put certain items on the agenda for its presidency next year," the person said. Among the items in question: a call on countries with budget surpluses to spend more.

The US has been pressing Germany for years since the financial crisis to do more to enhance growth, regularly pointing to the weakness of German domestic demand compared to exports.

Indeed, its large trade and budget surpluses make Germany a primary focus when the IMF and other institutions call for "collective effort" to put global growth back on track.

Yet German Finance Minister Wolfgang Schaeuble has feigned deafness, even if he interprets Ms Lagarde's attention to his country as a "compliment".

"Germany is doing well economically because it is sticking to the rules that we all agreed in Europe," he said during a roundtable Thursday that included Ms Lagarde.

Meanwhile, he exhorted his European partners, including France - which has run high trade and budget shortfalls - to abide by the same guidelines.

Poul Thomsen, head of the IMF's European Department, said structural reforms in Europe were also important.

"We should not believe that just to get Germany to do more is going to solve the euro growth problem," he told reporters on Friday.

European Finance Commissioner Pierre Moscovici confirmed that Brussels and the G20 were also urging Germany to do more.

But "put pressure on Wolfgang Schaeuble?" he asked, sounding unconvinced that this could pay off.

AFP

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