24 April 2013

Bloomberg: Germany signals austerity leeway in budget-rule flexibility

A German Finance Ministry official has said that budget-cutting rules must allow for flexibility, opening a chink in Chancellor Angela Merkel's austerity-first policy as the only course to rescue Europe from its debt crisis.

The remarks by the German finance official responsible for fiscal policy suggest a recognition in the Merkel government that a further softening of targets is required to reflect the economic reality of a euro area facing record unemployment and a second year of recession. For all the talk of granting a little fiscal flexibility, German elections in less than five months mean that Merkel cannot afford to relent on her central drive for structural reform to make Europe more competitive. Illustrating the fine line she faces, Merkel’s allies in parliament bridled yesterday at the suggestion of loosening austerity.

The commission president’s comments captured renewed criticism of Germany’s austerity agenda, as Group of 20 allies and the International Monetary Fund pressed Merkel to take heed of the persistent economic turmoil three years after Greece became the first euro state to ask for an international bailout. While Merkel has acceded to fiscal slippage before, she has little room to manoeuvre as she seeks a third term on September 22 as polls show voters overwhelmingly in favour of her crisis policy to date.

Merkel has given no indication of a willingness to reconsider austerity. She instead redoubled her defence of consolidating budgets in several speeches over the past week, dismissing the notion of debt-fuelled spending as compounding the problem of excessive deficits. “Saving is not an end in itself”, Merkel said. “It’s fundamentally about whether one day we can live from what we take in” without excessive borrowing. “It’s about whether we’re being competitive, if we can sell our products, and if we have jobs for our citizens.”

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