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International Monetary Fund head Christine Lagarde has said that Germany should not be looking at measures aimed at consolidating its finances, apparently in concern over a SPIEGEL report indicating that the German Finance Ministry is working on a far-reaching package of spending cuts and tax hikes for introduction following general elections.
Germany and other countries "can afford to move ahead with consolidation at a slower pace than others", Lagarde said. "That serves to counteract the negative effects on growth that emanate from the cuts made in crisis countries."
The comments come just days after SPIEGEL reported that Finance Minister Wolfgang Schäuble is working on a list of consolidation measures. The measures may include a hiking of the value-added tax (VAT) rate of 7 per cent for items such as food and public transportation to the standard 19 per cent. The government would also slash its contribution to the German health fund, and the retirement age would automatically rise in accordance with life expectancy. The goal of the package is to prepare Germany for the constitutionally anchored debt brake, which will severely impact Berlin's ability to take on debt in the coming years.
Lagarde did, however, voice some cautious optimism for the ongoing development of the eurozone's economy in 2013. "Our forecasts say that the economy in the eurozone will develop better in the coming year than it has in past years", she said. "That, however, is dependent on the right political measures being pushed through. If that happens, we expect growth to accelerate."