Euro zone puts pressure on Dutch, Germans to spend more

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© Reuters. Commissioner Moscovici in Brussels

By Jan Strupczewski and Francesco Guarascio

LUXEMBOURG (Reuters) – Germany and the Netherlands, which run budget surpluses, should invest more to help boost economic growth at home and throughout the euro zone, top euro zone officials said on Wednesday, echoing call from the European Central Bank last month.

But the German and Dutch finance ministers insisted their governments were already doing a lot to boost domestic demand.

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Euro zone economic growth is slowing as its biggest economy, Germany, teeters on the brink of a recession, keeping inflation subdued. But despite an call for a fiscal stimulus, the euro zone is not planning any concerted action.

Instead, top euro zone officials put pressure on Germany and the Netherlands to use their “fiscal space” – EU jargon for sound public finances – to invest more and boost growth in their own economies and in the whole euro zone.

“There are two kinds of countries – those who need to go further with their fiscal efforts and those who need to invest in growth,” European Commissioner for Economic and Financial Affairs Pierre Moscovici said.

Germany and the Netherlands “have to understand that, because it is in their own interest and in the collective interest of the euro zone”, he added.

But German Finance Minister Olaf Scholz, arriving for a monthly meeting of euro zone finance ministers in Luxembourg, said Berlin was running “a very expansionary finance policy”.

“We have an all-time high in investments. We have now another huge impulse with our measures to tackle climate change. We’re spending 150 billion euros extra over the next 10 years,” he said.

Dutch Finance Minister Wopke Hoekstra also brushed aside the pressure to spend more.

“We have quite an expansionary budget already and you’ve also heard about our objective to come up with an investment fund, which is meant to address structural issues in the Dutch economy,” he said.

FISCAL POLICY

In a discussion paper, the European Union’s executive arm said the slowing euro zone economy needs pre-emptive fiscal stimulus or it will face a long period of low growth.

The chairman of the 19 ministers representing euro zone countries, Mario Centeno, told reporters: “We need to look carefully …who has fiscal space to act and … who does not, (so they) continue to reduce their debt.”

The French and Italian finance ministers also urged Germany and the Netherlands to act.

The Commission paper said governments should move quickly as it took time for fiscal policy changes to affect the economy.

It said that to spur growth, further ECB monetary policy easing would be less effective and have larger unwanted side effects than fiscal stimulus by governments, which it said would now be more effective than in normal economic times.

German Chancellor Angela Merkel has long resisted calls to draft a fiscal stimulus package for her country. Some officials said that even two quarters of contracting gross domestic product — a recession — might not be enough to persuade Berlin to loosen its purse strings.

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Source: Investing.com

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