Germany told to do more for global growth
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 last 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 percent 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.
Low interest rates allow “countries like Germany” to tap capital markets cheaply to develop infrastructure, the IMF chief 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 the United States had also directly challenged Berlin to spend more to boost growth.
“The United States chose this IMF 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.
Berlin said last week that the German economy will grow faster than expected this year before slowing in 2017 and 2018. Germany’s gross domestic product (GDP) will increase by 1.8pc in 2016 before slowing to 1.4pc growth in 2017 and 1.6pc in 2018, Economy Minister Sigmar Gabriel said.
The confirmation of Germany’s economic strength only adds weight to calls from EU neighbours and global finance chiefs for Berlin to boost growth in the languishing eurozone by expanding spending and investment. –
‘We believe that some countries have fiscal space. Well, if so, they should use it.’