Extreme Economics

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Germany's Austerity Absolutism Endangering Euro Zone Growth

ECB President Draghi talks to Germany's Chancellor Merkel during European Union leaders summit in Brussels
You know, it doesn't hurt to spend a little more.
  • Why it matters

    Why it matters

    A zero deficit goal prevents Germany from helping the euro zone’s economy recover.

  • Facts

    Facts

    • The German finance minister wants the country to end deficit spending.
    • Mario Draghi, the ECB president, wants euro zone countries to stimulate growth.
    • Germany is strong enough to sustain a higher level of euro-zone public spending.
  • Audio

    Audio

  • Pdf

Wolfgang Schäuble is not the first finance minister by a long shot to dream about a federal budget deficit of zero.

The Social Democrat Alex Möller was the last of Mr. Schäuble’s predecessors to live that dream. But that was 45 years ago. And yes, his party was accused for decades by its opponents, the right-wing Christian Democratic Union, of not being able to deal with money.

It’s easy to understand CDU member Mr. Schäuble’s ambition to end government deficits. He has a good chance to achieve the objective, as planned in the budget, even if the German economy has slowed down a bit.

But is this even the right objective? Isn’t the federal government’s rigorous budget discipline exacerbating Europe’s growth problems? Shouldn’t a responsible financial policy have other priorities?

One look at the euro zone’s weak economic prospects should be reason enough for Chancellor Angela Merkel and her finance minister to have a serious talk. It undoubtedly was important to have Germany as an anchor of stability during the worst phase of the  European debt crisis.

International investors view Germany as a safe haven. It has gradually put its public finances in order and barring the international financial crisis, it would probably have been able to present a debt-free federal budget much earlier. Germany had shown that budget discipline and economic growth were not a contradiction in terms, even if politicians in some European capitals still maintain the opposite is true.

Having no deficit is not an end in itself, however. Of course, deficit worries make it easy for Ms. Merkel to reject spending requests from the coalition partners, which include the CDU, its Bavarian sister party, the Christian Social Union, and the Social Democratic Party. 

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