Germany under fresh pressure to boost spending

Helsinki (AFP) –

Germany faced fresh pressure on Friday to boost public spending and help revive a sputtering European economy, a day after the European Central Bank warned it had reached the limit of its powers.

The economy in Europe is in slowdown, tripped up by the US-China trade war and rising fears of a chaotic Brexit that have especially harmed export-powerhouse Germany.

To stave off recession, the ECB on Thursday cut its already negative interest rates and relaunched a round of bond-buying stimulus, but bank head Mario Draghi urged governments to do more to spark the economy.

The message was especially intended for fiscally-cautious Germany, where the government this week yet again unveiled a zero-deficit budget that flew in the face of calls for more spending, including by the IMF, top economists and the European Commission.

France has voiced the loudest calls that Berlin abandon low spending, a point finance minister Bruno Le Maire repeated on Friday.

"We should not be satisfied with the level of growth within the eurozone," Le Maire said as he arrived for talks with his EU counterparts in Helsinki.

"It is now the time to decide and have more investments, more growth, more prosperity and more jobs within the eurozone," he added.

His Luxembourg counterpart, Pierre Gramegna, also made the call, without specifically calling out Berlin.

"Countries that have worked well to balance their budgets and have room for manoeuvre, should use it," he said.

Germany is led by a fragile coalition, topped by centre-right Chancellor Angela Merkel, in which the centre-left has not dared snap five straight years of balanced budgets, a policy known as "black zero".

But European sources told AFP that behind the scenes Berlin was budging on the hot-button issue, with quiet pledges to deliver a spending package if the European economy turned starkly worse.

German Finance Minister Olaf Scholz was not drawn on the issue on Wednesday, insisting only that the ECB was an independent institution.

But earlier this week Scholz, who is centre-left, told German lawmakers the country was "in a position, with the financial fundamentals we have, to respond with many, many billions, if indeed an economic crisis erupts in Germany and Europe."

But any pivot to deficit spending would be historic and sure to face opposition of Scholz's governing partner, Merkel's centre-right CDU, which is already furious at the ECB's loose monetary policy.

German popular opinion is also highly sensitive on loosening the purse-strings.

Reacting to the ECB's fresh stimulus, on Thursday Bild, Germany's most read newspaper, depicted Draghi as a Count Dracula sucking blood from German savers.

In his monthly policy meeting on Thursday, Draghi said fiscal policy must become the "main instrument" for fixing the European economy.

© 2019 AFP