Renewed pressures on Berlin to adopt growth policies

José Manuel Barroso, President of the European Commission, went to Frankfurt-on-Main where he held the “First Frankfurt speech on Europe”, entitled “Wir müssen reden, Europa!” (We need to talk about Europe!). (EC Audiovisual Services, 05/11/2013).

Yesterday, the European Commission in Brussels announced that euro area growth prospects are sluggish, and downgraded the projected rate of GDP increase for 2014, from 1.2% to 1%. Also yesterday President Manuel Barroso, while speaking in Saint Paul’s Church in Frankfurt, where the first democratically elected Parliament of Germany was convened, called on this country to do more to help itself and others gain a robust growth path. His message was that Germany should indirectly support Eurozone’s south, to overcome a long period of unemployment and recession, cautioning that direct help with loans doesn’t lead anywhere.

Growth policies needed, not loans

Barroso explained that “Germany could do more to enable also the others to bring in their respective assets, for example, through free and unhindered access to the service markets across Europe including Germany or through wages in line with productivity”. In short, he followed the US Treasury and the IMF in asking Germany to relax its restrictive economic policies and open up its protected services market to others. Of course, he used less strong wording than the Americans.

The President of the Commission is well aware that negotiations between Angela Merkel’s CDU and SPD socialists to form a coalition government in Berlin, are now centred on the introduction of a mandatory minimum wage around €8.5 an hour. It’s at least five years now that real wages in this country are being nailed down. German workers haven’t gained anything from their country’s strong productivity performance during the past five years. Barroso meant that the time has come for the German workers to get their share from their country’s increased competitiveness, and through their increased spending on consumption, to help the entire Eurozone enter again into a sustainable growth path.

Germany should do more

Last week the US Treasury, in its semi-annual economic report accused Germany of hoarding unneeded trade surpluses and applying austere incomes and fiscal policies. According to the Americans, in this way Germany hurts the growth potential not only of the rest of Eurozone but of the entire world. Berlin answered back by saying that, “The trade surpluses reflect the strong competitiveness of the German economy and the international demand for quality products from Germany.” In any case, the Americans and the IMF for quite some time insist that Germany should change its economic policies.

Coming back to Europe, this is not the first time that Barroso criticises Germany on its insistence on austerity policies. His new intervention yesterday on this subject coincided with a statement by Commission’s Vice-President Ollie Rehn that Eurozone is heading towards disinflation and a freezing of unemployment along the present unacceptably high levels, mainly in the south. Yesterday Rehn presented the Commission’s autumn economic forecasts, stressing Eurozone’s poor growth prospects. When it came to unemployment and disinflation, he appeared more pessimistic. As the European Sting reported this morning, he stated that “growth will pick up only gradually and will translate into jobs only with a lag”. Later on, he also accepted that the “most recent data indicate that we will likely see an even lower rate of inflation in the near term”. Inflation in Eurozone has been and still is decelerating fast to 0.7% in October, from 1.6% in July.

In view of those bleak prospects, Barroso couldn’t chew his words in Frankfurt. What he said in Paul’s Church yesterday can be regarded as a strong pressure on Germany to change its economic policy course. Every hour this issue gains more momentum in view of the formation of the CDU-SPD coalition government in Berlin. The German socialists have clarified that they will not participate in a government scheme, which will simply continue along the lines followed so far by Angela Merkel.

Maybe the joint pressures, internally from the German socialists, the European Commission and the south Eurozone countries and externally from the US and the IMF will prompt Berlin to really change its course.