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

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Featured Stings

The challenges of Chinese investment in Latin America

European Youth Vlog

The EU Commission fails to draw the right conclusions about corruption

Menu for change: why we have to go towards a Common Food Policy

“As German Chancellor I want to be able to cope with the merger of the real and digital economy”, Angela Merkel from Switzerland; the Sting reports live from World Economic Forum 2015 in Davos

Europe’s far-right launches attacks on neighboring nations

Easier Schengen Visas for non-EU holiday makers: A crucial issue for south Eurozone countries

Lagarde: Keep feeding the banks cut down wages and food subsidies

Chart of the day: This is what violence does to a nation’s GDP

Why the euro may rise with the dollar even at lower interest rates

Switzerland to favour EU citizens in immigration quotas as the risk of a new referendum looms

The global issue of migration in 2017

JADE Spring Meeting Live Coverage: Entrepreneurial skills in the digital markets

EU rewards organisations that make eco-innovation pay

UN envoy ‘encouraged’ by latest talks on avoiding ‘worst-case scenario’ in Syria’s Idlib

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

UNICEF urges all countries to provide ‘Super Dads’ with paid leave

Two women threaten to tear the world apart

The new European Union of banks is ready

The Italian ‘no’ and France’s Fillon to reshape Europe; Paris moves closer to Berlin

How a possible EU budget deficit affects the migration crisis

The EU cuts roaming charges further while the UK weighs Brexit impact

Easing funding woes for UN agency assisting Palestine refugees a ‘wise investment for today and the future’

CHINA UNLIMITED. PEOPLE UNLIMITED. RESTRICTIONS LIMITED

“The Sea is vast as it admits all rivers”, Ambassador Yang Yanyi of the Chinese Mission to EU gives her farewell address in Brussels

Security Council hails ‘historic and significant’ joint peace declaration by Ethiopia and Eritrea

Turkey’s Erdogan provokes the US and the EU by serving jihadists and trading on refugees

European Confederation of Junior Enterprises hosts in Geneva the Junior Enterprise World Conference

UK keeps its Brexit plan secret or there is no strategy at all whatsoever?

EU finally agrees on target for 40% greenhouse emission cuts ahead of Paris climate talks

Will ECB win against low inflation by not following Quantitave Easing?

France-Germany: Divided in Europe, USA united in…Iran

How well you age depends on what you think of old age

Somalia: UN urges steps to ensure future elections not ‘marred’ by rights abuses seen in recent polls

Guinea President Alpha Condé: “We must tackle the root causes of migration”

Entrepreneurship in a newly shaped Europe: what is the survival kit for a young Catalan and British entrepreneur in 2018?

EU Telecoms deal: Fees on calls across the EU capped and 5G network by 2020

Is Data Privacy really safe seen through Commissioner’s PRISM?

EU Migrant Crisis: Italian Coast Guard Headquarters and Italian Navy to give host national opening addresses at Border Security 2016 in Rome

Who cares about the unity of Ukraine?

This is what countries are doing to fight plastic waste

Europe to turn the Hamburg G20 Summit into a battlefield

EU and China seize momentum to enhance trade agreements in response to Trump’s administration

Posting of workers: final vote on equal pay and working conditions

Italy’s Letta: A European Banking Union soon or Eurozone collapses

European Youth Forum on Summit on Jobs and Growth

Innovation and Entrepreneurship Changing the Face of Europe

Social entrepreneurs can change the world – but these 6 things are holding us back

Tsipras bewildered with Berlin’s humiliating demands; ECB expects political sign to refinance the Greek banks

2019 EU Budget: Commission proposes a budget focused on continuity and delivery – for growth, solidarity, security

Germany’s fiscal and financial self-destructive policies

COP21 Breaking News_08 December: Cities & Regions Launch Major Five-Year Vision to Take Action on Climate Change

“CETA is a game changer for major trade agreements”. The Sting reports live from EBS 2015

Azerbaijan chooses Greek corridor for its natural gas flow to EU

Climate negotiations on the road to a strong Paris agreement rulebook

Is the West gradually losing Africa?

The “Colombo Declaration” adopted at the World Conference on Youth 2014

ECB’s unconventional monetary measures give first tangible results

France is bringing back national service

UN Envoy ‘confident’ deal can be reached to avert further violence around key Yemeni port city

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