Germany’s Schaeuble hits back at Brussels

The European Commission’s call for fiscal stimulus should not be directed at Germany, Finance Minister Wolfgang Schaeuble said yesterday, arguing Europe’s biggest economy has increased investment more than the euro zone average in the last decade. The commission, which is the European Union’s executive body, called last week for Germany and other euro zone countries to loosen overall budgets next year to create more growth and jobs, a plea also aimed at addressing the rise of populist parties in Europe.

Such a move would be a sharp reversal of EU policy, which has been focused on budgetary discipline and austerity for most of the eurozone’s existence. Populist parties have fed on the resulting discontent. Chancellor Angela Merkel’s conservatives, for example, will campaign for next September’s election in an increasingly fractured political landscape, in which the far-right Alternative for Germany (AfD) is likely to enter the national parliament for the first time. “I think the EU Commission’s recommendations are addressed at the wrong country,” Schaeuble told the Bundestag lower house of parliament in a general budget debate, adding investment in Germany grew 3.9 percent a year between 2005 and 2015, compared with a rise of 0.7 percent in the eurozone. Schaeuble, a veteran member of Merkel’s conservatives and renowned for his fiscal hawkishness, said the government was able to increase spending thanks to low borrowing costs and rising tax revenues.

But tax revenues would slow in coming years and interest rates would not get any lower, giving Germany less fiscal room for manoeuvre as it plans to hike spending on defense and on tackling the causes of migration in Africa, Schaeuble warned. The Cologne Institute for Economic Research lowered its 2017 forecast for German growth to 1.0 percent from 1.5 percent previously, citing political uncertainty after Britain’s vote to leave the EU and the election of Donald Trump in the United States.

The government expects growth to slow to 1.4 percent next year from a predicted expansion rate of 1.8 percent this year which would be the strongest in half a decade.

Schaeuble urged all political parties to be as honest and realistic as possible about Germany’s fiscal possibilities in the upcoming election campaign. “The better we manage this, the less space we’ll leave for those who want to weaken democracy with demagogic and populist paroles,” Schaeuble said.