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Europe's risk of paralysis in slowdown puts Germany on the spot

France and the US want Germany to do more to spark growth but the Germans view slowdown as temporary

Washington

GERMANY and France aren't exactly looking like a power couple when it comes to firing up Europe's slowing economy.

The divide between the two biggest euro-area economies was on display at the spring meetings of global policymakers in Washington, where the International Monetary Fund warned that growth in the region is losing momentum beyond a normal cooling of the economy. But the two nations that Europeans look to for leadership are at odds.

For German Finance Minister Olaf Scholz, a key challenge was fending off pressure, including by France and the IMF, for Chancellor Angela Merkel's government to ease off its annual push for a balanced budget and do more to revive growth instead. One possible remedy, according to Mr Scholz: Come to Germany and find yourself a job. "We have growth in Germany - there is nothing like a traditional recessive situation," he told Bloomberg Television on Friday. "If there would be 500,000 or one million very skilled people coming to Germany and knock at the right doors, they would find a job." Much of the disagreement between Paris and Berlin is about the level of urgency.

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French Finance Minister Bruno Le Maire wants the euro area to prepare for a joint response to a possible downturn, meaning countries such as Germany should use their "fiscal space" to spend more.

In the past, the Trump administration has also pressured Germany to reduce its surplus and do more to spark growth.

Mr Scholz views the slowdown as temporary and dismisses the need for extra spending and an expansive European effort.

Germany is already pursuing a "very expansive financial strategy", including spending on social programmes and infrastructure, Mr Scholz said. Its debt reduction from 80 per cent to 60 per cent of gross domestic product creates a fiscal buffer that could be used in a major economic crisis, he said.

"I would not say there is a common position among the European states, but a common understanding of the current situation," Mr Le Maire told reporters in Washington. Germany's economy stagnated in the fourth quarter after a third-quarter contraction. Coupled with five consecutive quarters of slowing year-on-year growth in the euro area, that's shifting the economic goalposts for governments and the European Central Bank (ECB).

The ECB is readying more support for lending to the real economy just a few months after halting its crisis-era bond-buying programme.

Investors don't see it as being able to lift interest rates well into 2020.

At the centre of Europe's woes is a manufacturing shock in Germany, which officials blame on temporary factors from low water levels to a statistical overhang from previous quarters. The IMF has cut its growth forecast for Germany to 0.8 per cent this year, from an estimate of 1.3 per cent it made three months earlier.

ECB president Mario Draghi pointed to unusual factors such as those in Germany as exacerbating the bleakness for the euro area's export-oriented economy. He and his colleagues have stepped up calls on European governments to help stimulate the economy.

"Incoming data have been weak, in particular in the manufacturing and tradeable goods sectors, reflecting a slowdown in external demand," he told fellow financial policymakers in Washington on Friday. "This was compounded by some country and sector-specific factors that are turning out to have somewhat longer-lasting effects than previously expected." BLOOMBERG