Germany’s fiscal and financial self-destructive policies

International Monetary Fund Managing Director Christine Lagarde (R) speaks the German Finance Minister Wolfgang Schäuble (L) during a break from the IMFC meeting as Finance Ministers and Bank Governors meet at the IMF Headquarters April 20, 2013 in Washington, DC. The ministers and governors are attending the IMF/World Bank Spring Meetings in Washington. (IMF Photo/Stephen Jaffe).

International Monetary Fund Managing Director Christine Lagarde (R) speaks the German Finance Minister Wolfgang Schäuble (L) during a break from the IMFC meeting as Finance Ministers and Bank Governors meet at the IMF Headquarters April 20, 2013 in Washington, DC. The ministers and governors are attending the IMF/World Bank Spring Meetings in Washington. (IMF Photo/Stephen Jaffe).

IMF Mission’s “Concluding Statement” (Article IV Consultation) on the German economy which was published yesterday, contains almost the same basic recommendations as the European Commission’s assessment aired at the Semester Press Conference in Brussels on 29 May. Both reports had references to Germany’s over stretched fiscal consolidation (meaning unneeded austerity) and the need to increase wages and reduce taxation on labour, all that in order to better serve the country’s and Eurozone’s efforts for growth.

Fiscal austerity

Starting with the Teutonic austere ideology favouring fiscal overcorrection, the IMF’s mission concludes that, “Over the past three years, the fiscal balance has exceeded plans…fiscal over-performance should be firmly avoided as it could imply a contractionary fiscal stance that is unwarranted in the current low growth environment”. This is a clear indication that the Fund tells the German government to relax its internal unneeded austerity, in order to help the country’s and the Eurozone’s economy to grow.

This is exactly what the Commission recommended to Berlin only some days ago. In this respect the President of the EU executive, Manuel Barroso last Wednesday 29 May asked Berlin to relax its internal fiscal austerity policy. He said, “Surplus countries need to remove the structural obstacles to the growth of their domestic demand”. Barroso obviously means that Germany has to spend more to help its own economy and the rest of Eurozone to grow.

Coming to the labour market and the wages level, the EU Vice President Ollie Rehn, had almost the same thing to say as the IMF. According to Rehn, “Our recommendations to Germany today include sustaining the conditions that enable wage growth to support domestic demand. This requires, among other steps, reducing high taxes and social security contributions, especially for low wage earners in Germany”.

As for the IMF the relevant passage goes like this “In the context of an aging population, recent efforts to augment the labour force through tax measures… lowering the tax burden for low wage and secondary earners, increasing availability of full-time high-quality childcare, facilitating migration of medium-skilled workers, as well as identifying and addressing disincentives to having children could hold promise”.

All those recommendations converge towards the same policy proposals; less fiscal austerity and higher take home pay for workers. Those two measures could help Germany grow and Eurozone with it. The IMF insists that “A more robust rebound (of the economy) is being held back by continued weakness in business investment, mainly related to uncertainty surrounding prospects and policies for the euro area, despite the progress made so far. The slight loosening of the fiscal stance envisaged this year is appropriate, and fiscal over-performance should be avoided”. It goes without saying that the outlook is not encouraging at all. The IMF stresses that, “We see risks to the outlook as tilted to the downside”.

Financial risks

Passing now to Germany’s fictitious financial perfection, the Fund’s observations do not support that. “Banking system soundness has improved, but vulnerabilities remain…Overall asset quality has remained broadly stable, although there are vulnerabilities related to exposures to specific sectors such as shipping, international commercial real estate, and certain foreign asset holdings”.

There is no doubt that with those remarks the IMF, after examining very meticulously the health of the country’s banking system, found it less healthy than Berlin wants all of us to believe. Consequently the very low-interest rate cost that the country pays for its borrowing is not quite the result of the alleged soundness of its financial system, but it has to be attributed to the almost zero interest rate on liquidity offered by the ECB.

As a result the very low-interest rates loans accorded by the country’s banks to the above mentioned business sectors, may prove to be very risky assets for the lenders. Under this light Germany could appear as the country which more than others might need in future effective support from the eventual European Banking Union, the enactment of which Berlin today obstructs.

In conclusion, both the austere fiscal policy and the low-interest rate borrowing/lending that Germany pursues with obstinacy today, may prove self-destructive for the country itself.

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

the sting Milestone

Featured Stings

Can we feed everyone without unleashing disaster? Read on

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

Landmine casualties high for third consecutive year despite record funding, latest monitor reports

Does hosting a World Cup make economic sense?

We have solutions to crime. We just need to scale them

‘Ghost fishing’ is threatening our oceans. Here’s how we can tackle it

5 surprising ways digital technology is changing childhood

MEPs agree on future regional and cohesion funding

Achieving targets on energy helps meet other Global Goals, UN forum told

Sanctions on Russia to be the biggest unity test at this European Council

Strong multilateral institutions key to tackling world’s dramatic challenges, UN chief says In Moscow

Greater transparency, fairer prices for medicines ‘a global human rights issue’, says UN health agency

Health: The neglected aspect of climate change

COP21 Breaking News: Paris Pact on Water and Climate Change Adaptation Announced

Oh, well, you are wrong, Google responds to the European Commission

Climate change and health: an everyday solution

The Amazon is reaching a dangerous tipping-point. We need to scale solutions now if we have any chance of saving it

3 steps to making multistakeholder partnerships a powerful force

Services are the hidden side of the US-China trade war

VW diesel scandal and climate change: can increased independent car checks lead to cleaner mobility?

Global Compact on Refugees: How is this different from the migrants’ pact and how will it help?

5 things to know about African migration

“Two Pack” approved: Is democracy chased away from Brussels?

Yellen and Draghi tell Trump and markets not to expedite the next crisis

NASA has released new photos of the Apollo 11 moon landing

Children who exercise have more brain power, finds study

The Ecofin Council creates officially the clan of ‘undead’ banks

Brussels to point the finger to Washington for lack of commitment over TTIP

Commission launches debate on more efficient decision-making in EU social policy

Why the ECB suddenly decided to flood banks with money?

Why medical students decide to study abroad?

Access still an obstacle to reaching stricken communities on Indonesian island: UN agencies

End fossil fuel subsidies, and stop using taxpayers’ money to destroy the world: Guterres

Global leaders and companies pledge to reduce the gender pay gap by 2030

Teenage girl’s death sentence spotlights Sudan’s failure to tackle forced marriage, gender-based violence – UN rights office

4 steps towards wiping out cervical cancer

Why business can no longer turn a blind eye to poor vision

Future EU farm policy: Agriculture MEPs urge fair funding, no renationalisation

Adolescent health has been overlooked for too long

Technology companies have power. They must assume responsibility

Clean Mobility: Commission tables proposal on car emissions testing in real driving conditions

October’s EU strong digital mix: From Safe Harbour to Net Neutrality, Roaming and Snowden

Brexit update: Will Theresa May’s last-minute desperate efforts procrastinate Brexit?

DR Congo: Ebola outbreak spreads to eastern ‘no-go’ zone surrounded by rebels

EU and US close to an agreement on data sharing amid European citizens’ concerns

Dear China

Human rights chief calls for international probe on Venezuela, following ‘shocking accounts of extrajudicial killings’

Ahead of key UN-backed Marrakech migration conference, youth recount harrowing journeys

‘Historic moment’ for people on the move, as UN agrees first-ever Global Compact on migration

A Europe that protects: Continued efforts needed on security priorities

‘Break the cycle’ of disaster-response-recovery, urges top UN official, as death toll mounts from Cyclone Idai

Why Climate Change Matters for Future Health Professionals

Intergenerational, intercultural, interactive – The 2015 edition of JADE’s Generations Club: Transforming Europe into an entrepreneurial society

How private investment can boost education access and quality in the digital economy

Main results of EU-Japan summit which took place on 25/04/2019 in Brussels

MWC 2016 LIVE: BlackBerry acquires Encription, talks Microsoft and health

The Monetary Union drives Europe into dangerous paths, CoR demands an EMU of regional content

JADE @ European Business Summit 2014: Youth Unemployment – a drive to Entrepreneurship

The most unlikely innovators are changing ICT for development – it’s time we took notice

FROM THE FIELD: Argentina Preserving Pristine Forests

“A global threat lies ahead worsened after the EU’s green light to the Bayer-Monsanto merger”, a Sting Exclusive by the President of Slow Food

4 climate tipping points the planet is facing

More Stings?

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s