Berlin Insists on Euro Zone Austerity

The euro zone must stick to its austerity-led recovery plan, Germany’s finance minister insisted on Monday, signalling Berlin’s limited appetite for the more growth-oriented policies advocated by some other European leaders.

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Wolfgang Schäuble said the only way to achieve the economic growth that was needed in the region was to continue to rein in budget deficits and pay down debt, praising the tough new Spanish budget – which contains 27 billion euros in new taxes and spending cuts – as an example.

“The first precondition in order to have sustainable growth everywhere in Europe is fiscal consolidation,” Mr Schäuble said at a press conference with his Spanish counterpart, Luis de Guindos. “If now we talk about growth, it shouldn’t be understood as a change of direction. That would be a mistake.”

Mr Schäuble’s remarks, following similar comments from Angela Merkel, Germany’s chancellor, come despite the recent political upheaval in France, Greece and the Netherlands, where strong polling from euroskeptic populists has forced political leaders to confront growing voter anger towards austerity measures.

The push for new growth policies – prompted in part by expectations of a victory in Sunday’s French presidential election by socialist François Hollande, who has made such policies a cornerstone of his campaign – has prompted EU officials to dust off similar proposals that have been stymied in the past.

“A number of actors are trying to adjust to the change in tone in the debate,” said one senior EU diplomat involved in the discussions.

EU officials said the plan gaining the most traction is new funding for the European Investment Bank, the EU agency which invests alongside private financing in infrastructure and other European development projects.

Olli Rehn, the EU’s top economic official, this month proposed 10 billion euros in new capital for the EIB, which would raise the bank’s lending capacity by 60 billion euros – a move that has since been backed by both Ms Merkel and Mr Hollande. Mr Schäuble said the EIB had “good experience” of attracting capital through co-financing projects.

Such a move is unlikely to have near-term benefits, however, and other EU officials have been pushing for measures with more immediate impact.

Because of worse-than-expected economic contraction in some countries, some officials have urged a loosening of the tough new budget rules that have forced Belgium, Spain and the Netherlands to slash billions of euros in spending, despite deepening recessions in all three.

International Monetary Fund officials back such loosening and officials said there was some support for such a move within the European Commission. But there has been strong resistance from the European Central Bank, and it would likely be opposed by Berlin, as well.

Advocates of delaying tough deficit-reduction targets could be aided by new economic projections due from the European Commission later this month. The figures are expected to show sharp downward revisions in economic growth in several euro zone countries.