The predictable battle lines were drawn at the G20/IMF meetings in Washington – most of the world urged Europe to do more to foster growth while Germany warned against letting up on austerity. The argument will doubtless be reprised today when euro zone finance ministers meet in Luxembourg.
Given a ghastly run of German data last week and sharp cuts to its growth forecasts by the IMF and Germany’s economic institutes, Berlin’s stance looks increasingly odd but Finance Minister Wolfgang Schaeuble continued to make it abundantly clear he will not countenance any more public spending in the one European country that could really afford it.
Writing cheques won’t fix Europe, he stated bluntly.
If there was anything new it appeared to be the intensity of the response. This from European Central Bank chief Mario Draghi: “For governments that have fiscal space it makes sense to use it. You decide to which countries this sentence applies.”
Jyrki Katainen, the former Finnish premier poised to become the EU’s top official for growth and jobs, said Germany, France and Italy must focus on public investment to revive their economies.
Most outspoken was former U.S. Treasury Secretary Larry Summers, sharing the stage with Schaeuble. Europe risked sliding into an era of Japan-style deflation without a “substantial discontinuity in policy”, he said. Europe, and Germany in particular, should follow recent advice from the IMF to invest in infrastructure projects.