Germany shifts rhetoric to growth before French runoff
BERLIN, April 27 — Germany expects the dilemma of boosting growth and employment while cutting debt to dominate a summit of EU leaders in June, a government spokesman said, in a sign Berlin is relaxing its focus on austerity as the way out of the bloc's crisis.
Francois Hollande, the Socialist favoured to win a French presidential runoff on May 6, promises to shift the debate in Europe towards promoting growth if he is elected, criticising Chancellor Angela Merkel's emphasis on economic reform and budget cuts.
Merkel's spokesman played down their differences and stressed that Berlin had been pushing measures for months to bolster growth in recession-hit countries like Greece and Spain.
“For some time now, growth has been the second pillar of Germany's crisis-fighting policy,” Steffen Seibert told a news conference today.
“Growth was the subject of the European Council in January, in March, and the topic of boosting growth and employment will play a massive role at the June summit. Germany will be active, as it has been in recent months, in looking for the right measures with its partners,” he said.
Merkel, who had thrown her support behind conservative incumbent Nicolas Sarkozy in the French vote and refused to meet Hollande, firmly rejects the Socialist's suggestion that a “fiscal compact” on budget discipline agreed by 25 EU leaders in December should be renegotiated to include a growth component.
But Berlin's rhetoric on the need for growth-boosting steps has changed in recent weeks, as a broader political and popular backlash against austerity has swept across Europe.
Nobel-prize winning US economist Joseph Stiglitz denounced Europe's focus on austerity as “suicide” at an event in Vienna yesterday and urged rich European countries like Germany to invest more in infrastructure, education and technology.
Even European Central Bank President Mario Draghi is now calling for a “growth compact” to complement new rules on budget discipline, although specifics have been scarce.
A compromise between Merkel and Hollande along these lines seems possible if the leftist challenger defeats Sarkozy next month.
When asked whether Merkel was open to such a pact, Seibert did not answer directly, but said: “The German government has pushed massively in recent months so that Europe talks about concrete measures to boost growth. “It will continue push for this.”
Hollande has said he will travel to Berlin for talks with Merkel if he wins and the topic of a “growth pact” could be the focus of their discussions.
The French Socialist listed four steps this week that he would like Europe to pursue. These include common European “project bonds” to fund infrastructure, a more robust financing role for the European Investment Bank, a financial transactions tax and more efficient use of EU funds.
German government officials have told Reuters that Berlin supports all of these measures except project bonds because it doubts whether infrastructure investment would help turn weak southern economies around. But even these bonds do not appear to be taboo for Germany.
Merkel has emphasised structural reforms, along the lines of labour market policies that Germany introduced under her predecessor Gerhard Schroeder, as the key to fostering growth and employment.
In the news conference, Seibert also voiced support for the Spanish government's policies. Standard & Poor's cut its sovereign credit rating for Spain yesterday by two notches to BBB-plus, citing an expected deterioration in the country's budget deficit because of economic weakness.
“The German government has faith in Spain and in its commitment to doing what is necessary to overcome the challenges of the crisis,” Seibert said, citing reforms of the labour market and banking sector, and Spain's austerity budget for 2012.
But he rejected the idea of using Europe's rescue funds to provide direct aid to the banking sector. The head of S&P's European ratings team told Reuters today that Spanish banks could need state aid if the country's finances deteriorated. — Reuters