HELSINKI, FINLAND — The German government should now look to ease its rules on fiscal spending in an effort to bolster its flagging economy, Valdis Dombrovskis, a vice-president of the European Commission, told CNBC Friday.
"Germany currently is one of the countries where this (economic) slowdown is most pronounced. From that point of view, we think that indeed now it's (a) very appropriate moment for Germany to look at possibilities to have this fiscal stimulus," Dombrovskis said in Helsinki, Finland, ahead of a meeting with the 19 finance ministers of the euro zone.
The topic of Germany's spending, or lack of it, has come to the fore this summer as its economy has slipped near recessionary territory. European Central Bank (ECB) President Mario Draghi said Thursday that it was "time for fiscal policy to take charge" in a subtle hint to Germany and other nations like the Netherlands. But Draghi's not alone, and many others have called for those countries with budget surpluses to invest and help reinflate a euro zone that has seen fragile growth fade in recent years.
Speaking to CNBC in his first interview since being appointed for another five years at the European Commission, Dombrovskis added that the EU needs a "balanced approach."
"We need to take into account questions of fiscal sustainability, particularly in high debt countries, but we also need those countries that have the fiscal space to use it to stimulate the economy, especially to stimulate investment," he said.
Draghi announced further stimulus measures Thursday for a region that has struggled to grow since the 2011 sovereign debt crisis. The central bank cut interest rates, eased lending conditions for banks and restarted the purchasing of governments bonds. Eight years on since the crisis first hit, euro zone growth is still moribund, inflation is persistently low and there are increased geopolitical risks, such as the U.S.-China trade war and the prospect of a no-deal Brexit.
Changing the EU's fiscal rules
Finance ministers in the euro area are also considering the bloc's fiscal rules. At the moment, European states are not meant to have a deficit higher than 3% of their gross domestic product (GDP) nor a public debt higher than 60% of their GDP. However, these rules have often been tested by different member states — without any significant consequences.
Speaking to CNBC Friday morning, some finance ministers showed resistance to changing the debt and deficit ceilings.
"I do think there is merit in looking in the simplification of the rules. (However), I'd be very cautious about enhanced flexibility that might allow unfunded changes in currency expenditures to take place," Paschal Donohoe, the Irish finance minister, said.
The European Commission — the EU institution that oversees whether member states are complying with the fiscal rules — has often been criticized for not pursuing any disciplinary action against the states that don't stock with these thresholds.
Vilius Šapoka, the Lithuanian finance minister, told CNBC that the actual enforcement of the rules is a question of credibility. "The enforcement factor is an essential one, because if we do not obey the law, if we do not respect the rules, then the credibility of the whole system is very weak," he said.
