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Germany

Germany Says Yes To Growth, Yes To Rigor

Op-ed: Germany has been accused of being anti-growth. But Germany's Finance Minister Wolfgang Schäuble argues that growth goes hand-in-hand with the budgetary discipline that Europe's biggest economy holds so dear.

The Brandenburg Gate in Berlin (Wolfgang Staudt)
The Brandenburg Gate in Berlin (Wolfgang Staudt)
Wolfgang Schäuble*


BERLIN - There are few subjects as hotly debated today as the issue of growth, and rightly so. Employment, the key to prosperity and security for all Europeans, cannot exist without it.

As Angela Merkel and François Hollande have both reminded us separately, growth is currently insufficient across many regions of the continent. The idea of a growth initiative is therefore not only legitimate, it also responds to Germany's interests, which cannot be separated from those of the rest of the continent.

Before going into the details of what such a project would involve, we should first address a misunderstanding. By growth, I most certainly do not mean the artificial stimulation of demand by government spending. These "stimuli," financed by debt, were used in the past: I'm thinking of the time immediately following the bankruptcy of Lehman Brothers. They can be useful in the context of an acute shock, when the state coffers are well-stocked, but not when the impediments to growth are structural. Nor do they work as a long-term strategy.

Whose interests are served today by a quick fix that leads to increased deficits, which the European budget rules don't allow anyway? Nobody, in my opinion. Certainly not the investors who finance the debt of the European states, and are worried above all about their ability to pay it back. No, the growth in question should be, to borrow a phrase from the G20, durable and balanced. It should be growth that is not only strong but also on solid footing. Growth along those lines would not remotely contradict budget stabilization, which has been put off too long, but which European states have been pursuing with tenacity.

On the contrary, the two things reinforce each other. An intelligently stabilized budget creates the confidence without which consumption and investment are inconceivable. Growth, at the same, contributes to budget stabilization by reducing expenditures and stimulating revenue.

In fact, growth is already at the center of the efforts that the euro zone countries have taken to combat the debt crisis over the course of the past two years.

Domestic demand

The countries that are currently receiving assistance from the European Stability Fund are in the process of implementing adjustment programs that are meant to improve competitiveness so that their economies can grow in the long term.

My country has fully contributed to the European efforts for growth. As the International Monetary Fund explains in its most recent report on Germany, published last week, the German economy is increasingly supported by domestic demand.

The numbers prove it: Our first trimester imports from the rest of the European Union were up 5% compared with last year. Our exports increased at just half that rate.

One of the lessons of the crisis is that members of the Monetary Union must work unceasingly to integrate their national economies. But they must also work to maintain and improve their competitiveness vis-à-vis the rest of the world.

Spain, which had long been buoyed by a real estate boom, saw its revenue crash after the housing bubble burst. But in a recent meeting in Santiago de Compostela, I was able to see how much my Spanish colleagues have learned.

The courageous reforms made by both the current Spanish government, led by Mariano Rajoy, and its predecessor, have already brought improvements: exports have picked up and the country has once again become more competitive.

In Italy, Mario Monti's government has opened up several markets that had been closed off and has taken steps to increase the effectiveness of public services. The Monti government is now working on an ambitious project to reform the labor market.

But the joint effort is not the sum of the national measures. Through various engagements, including the budget pact and the "Euro Plus' pact, the majority of the European Union members have committed not only to coordinate their economic policies but also to improve their competitiveness, encourage job growth and reinforce the banking industry.

Together, the members of the European family can do more. The themes at the European Council in March were sustainable growth, job creation and competitiveness. Those same themes are all still relevant for the two upcoming meetings of our heads of State, set to take place later this month, and at the European Summit in June.

One of the central questions will be whether we are currently doing enough for growth, and whether or not we could do more. It goes without saying that Germany will participate openly and constructively in the conversation.

We are ready, for example, to talk about the ability of the European Investment Bank to promote growth. Financing small and medium-sized business should also be discussed at the national and European level. Also we ought to address the issues of bureaucracy and the role of the State in the economy, which can be a growth inhibitor as well.

Additionally, we have to work on the structural funds. Can we target them more effectively? Many decisions have been made in an attempt to maximize the funds, but there is still work to be done. For example, why not use the funds to support professional development? The same questions apply to the E.U. budget in general. In other words, can we imagine a major change in the way Europe works for its members' economies?

This debate about growth is essential. And contrary to what some would argue, it does not contradict efforts to square up public finances in Europe and in the Euro Zone. Initiatives for growth and for the budgetary pact are complementary. They are pillars of a more robust, stable and durable monetary union.

*Schäuble is Germany's Finance Minister

Read the original article in French.

Photo - Wolfgang Staudt

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