Thursday, June 24, 2010

Germany defends austerity measures ahead of G20

BERLIN: Finance Minister Wolfgang Schaeuble rejected criticism that Germany was endangering economic recovery with austerity measures, saying the government had a "well-conceived" exit strategy from its stimulus spending.

In a guest column for the Handelsblatt newspaper on Thursday, June 24, Schaeuble said he could not understand criticism from abroad that Germany was "wrecking the recovery with austerity measures" because Berlin was doing a lot to stimulate growth.

"There is an implicit accusation that we're not living up to our international responsibilities as far as economic policies are concerned," Schaeuble wrote in a contribution for the business daily ahead of the G20 summit this weekend in Toronto.

"I cannot understand this argument because Germany has taken sweeping measures since 2008 to stabilise the economy. We've done that on top of all the automatic stabilisers we have (such as higher social welfare spending) that play a much smaller role in countries from which we're now being criticised."

Germany recently announced plans for '80 billion (RM318.2 billion) in budget cuts over the next four years, a package it hopes will bring the structural deficit of Europe's biggest economy within European Union limits by 2013.

US Treasury Secretary Timothy Geithner and top White House economic adviser Lawrence Summers wrote in a Wall Street Journal piece on Tuesday that G20 peers should not risk undermining growth for the sake of cutting deficits, echoing a similar call from President Barack Obama.

'Well-conceived exit strategy'
Schaeuble pointed to Germany's budget deficit climbing to 5% of gross domestic product (GDP) as evidence of its commitment to growth-boosting measures.

"It's true that an abrupt and ill-conceived exit from the stabilisation measures could endanger their success," he said. "But a credit-financed stimulation of demand cannot become a permanent, drug-like fix.

"We need a well-conceived exit strategy. The German government has one. The first consolidation measures won't take effect until 2011 and amount to less than 0.5% of GDP. There's no way that can be called hitting the brakes."

Germany, Europe's largest economy, has vigorously defended its plans to pursue the '80 billion savings measures in the next four years after Obama preached patience in clamping down on public spending.

On Thursday, Chancellor Angela Merkel dismissed criticism in a separate interview with ARD TV that Germany was not doing enough to stimulate its economy.

Merkel said she had told Obama in a phone call that Germany had done much to support economic growth with stimulus measures.

"Germany is doing much more in 2010 for the worldwide economic recovery than (other countries) on average," she said. ' Reuters

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