Germany Rebuffs EU Calls To End Austerity
Please note that we are not authorised to provide any investment advice. The content on this page is for information purposes only.
German officials on Tuesday took turns to criticise European Commission President Jose Barroso for his recent remarks advocating an end for austerity, pledging to continue their “growth-friendly consolidation” policies despite growing weariness to the contrary.
On Monday, Barosso had told a Brussels panel discussion that it was time to rethink the bloc’s emphasis on belt-tightening, warning that “we are reaching the limits of the current policies.”
German officials on Tuesday took turns to criticise European Commission President Jose Barroso for his recent remarks advocating an end for austerity, pledging to continue their “growth-friendly consolidation” policies despite growing weariness to the contrary.
On Monday, Barosso had told a Brussels panel discussion that it was time to rethink the bloc’s emphasis on belt-tightening, warning that “we are reaching the limits of the current policies.”
“Even if the policy of correction of the deficit is basically correct, we can always discuss the fine-tuning, the rhythm or the pace, but that will not be sustainable politically and socially,” Barroso said, according to an official speech transcript.
[quote]“While this policy is fundamentally right, I think it has reached its limits in many aspects, because a policy to be successful not only has to be properly designed, it has to have the minimum of political and social support,” he added.[/quote]Related: Eurozone Close to Ending Era of Austerity
Related: EU Leaders to Rethink Austerity Strategy
Related: IMF Chief Economist Admits To Austerity Mistake
Though Barosso’s comments sparked hope that France and Spain would be given more leeway to reduce their debt burden from public spending, they immediately drew condemnation from Europe’s largest economy – long portrayed as a fiscal hawk looming over the rest of the region.
“A departure from a strict course of budget consolidation in Europe would be a fatal signal,” said Norbert Barthle, the budget spokesman for Merkel’s Christian Democratic Union, in an emailed statement to Bloomberg.
Barosso’s remarks have “upset me greatly,” added Barthle, claiming that such a shift would demonstrate “that we aren’t really serious about reforming our countries.”
[quote]German Foreign Minister Guido Westerwelle also criticised Barosso, saying, “if we were to give up the policy of consolidating the budgets in Europe, if we were to fall back to the old policy of taking on new debt, then we would cement mass unemployment in Europe for many years to come.”[/quote]Germany is on path to trim its debt load of about 80 percent of GDP over the coming years. Last month, Finance Minister Wolfgang Schauble also announced that the country would be able to reach a structurally balanced budget by 2014, taking on no new debt by 2015.
Related: Germany To Take On No New Debt From 2015
Related: Germany’s Dangerous Gamble On The Cyprus Bailout: George Friedman
Related: Why Germany Has No Choice But To Save Europe: Mohamed El-Erian
However, the split between Berlin and its European partners appear to be widening, with even Brussels now seemingly turning away from extensive deficit reduction.
According to Reuters, German Chancellor Angela Merkel struggled to contain her irritation at Barroso’s comments during a public address on Tuesday.
[quote]”Everyone else is using this term ‘austerity’. That makes it sound like something truly evil,” Merkel told her audience at a book presentation. “I call it balancing the budget,” she said.[/quote]In their defence, German officials also pointed to data released by Eurostat, the EU statistical office, on Monday showing that government debt in the euro zone actually rose to 90.6 percent of GDP last year from 87.3 percent the year before.
However, Reuters noted that the same report showed that the bloc-wide deficit as a percentage of GDP fell back to 3.7 percent last year, from 4.2 percent in 2011 and 6.2 percent in 2010.
[quote]”There isn’t a single indicator I can find that suggests this policy of aggressive deficit reduction is working,” told Peter Bofinger, the only proponent of Keynesian economics in the German Council of Economic Experts, to Reuters.[/quote]Regardless, most analysts saw room for compromise between Germany and the rest of the EU. ING economist Carsten Brzeski told the Wall Street Journal that the policy shift hinted at by Barroso would involve giving countries committed to structural austerity measures more time to implement overhauls rather than abandoning austerity altogether – something Germany and Merkel would be likely to support.
[quote]”Merkel’s goal is not to destroy periphery economies, but to get public finances on a sustainable level, as long as the will is there to sustain public finances, nothing is at hand,” Brzeski said.[/quote]
