G7 Meeting

Schäuble Enters the Lion's Den

schauble in japan g7 meeting_dpa
Germany's Finance Minister, Wolfgang Schäuble (left) at the G7 meeting of finance ministers and central bank governors in Sendai, Japan on May 20.
  • Why it matters

    Why it matters

    Wolfgang Schäuble, Germany’s finance minister, looks likely to be swimming against the tide at this week’s meeting of finance ministers and central bank governors of the G7 group of leading industrial nations. Unlike most of his counterparts, he is calling for a tighter monetary policy.

  • Facts


    • Mr. Schäuble is concerned by the current tensions in financial markets, which he believes are not justified by the real economic situation.
    • He is pointing to Germany to demonstrate the success of his policies, highlighting that unemployment is at record lows and that since the start of this year the German economy has been growing faster than it had for a long time.
    • While the German finance minister has found support for his views within the larger G20 group, for example from China, he is relatively isolated in the G7 group.
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It’s not that easy to spoil Wolfgang Schäuble’s mood. “I’m looking forward to the talks with much pleasure and confidence,” Germany’s finance minister said with regard to the meeting with his counterparts from the G7 group of leading industrial nations. The talks are taking place from Thursday to Saturday in Sendai, Japan, and will revolve around the global economic situation.

It won’t be an easy debate for Mr. Schäuble, who is a member of Chancellor Angela Merkel’s center-right Christian Democratic Union. From the beginning he has been calling for an end to lax monetary policy and has rejected debt-financed economic stimulus programs. He appears to be the only member of the G7 group to hold this view.

Mr. Schäuble has based his argument in reality with references to Germany: Since the beginning of the year, the country’s economy has been growing at its fastest rate for a long time; employment is at record levels; and the state budget is balanced.

“I think German fiscal policy has been fairly successful,” he has said. While his colleagues would probably not dispute this, they do not wish to follow his example.

Mr. Schäuble has found little support in Japan, the host nation for this year’s meeting of G7 finance ministers and central bank governors. Japan’s finance minister, Taro Aso, is promoting a lax monetary policy and economic stimulus packages at least as intensively as Mr. Schäuble is calling for austerity.

In concrete terms, Mr. Aso wants to persuade his G7 colleagues to use joint state-funded economic stimulus programs to boost the struggling global economy. Prime Minister Shinzo Abe’s announcement that he intends to further postpone Japan’s budget consolidation highlights how serious the Japanese government is.

Japan’s central bank has also been pursuing an extremely expansionary policy for years, buying up large quantities of government bonds. This combination of lax monetary and fiscal policy has come to be known as “Abenomics,” after the country’s prime minister.

(Mr. Schäuble) believes the current high levels of debt and liquidity are tending to encourage nervousness rather than combating it.

Japan’s approach is backed by the U.S. government. Ahead of the conference in Sendai, the capital of the region to the north of Tokyo that was devastated by an earthquake and tsunami five years ago, Jason Furman, the chief economist advising U.S. president Barack Obama, called for an investment offensive and significant wage increases in Germany.

Even if no construction projects have been approved as of yet that is no reason not to start them in two to three years, Mr. Furman said in an interview with Handelsblatt in response to Mr. Schäuble’s objections to new investment. “There will probably also be a shortage of investment then,” he said. Mr. Furman believes that Germany’s productivity is waning and that its business model with its high export surplus is not suitable for most countries.

Mr. Schäuble, on the other hand, does not consider U.S. and Japanese economic policies to be a suitable model. He says there is currently a great deal of tension on financial markets, which he feels is actually greater than the real economic situation warrants. He believes the current high levels of debt and liquidity are tending to encourage nervousness rather than combating it.

While Mr. Schäuble has found support for his views and for his calls for structural reforms within the G20 group of leading industrial and emerging countries, for example from China, he is relatively isolated in the G7 group.

The finance ministers will debate their contrasting creeds with economists at the meeting in Sendai.

At most, Mr. Schäuble can expect to find support for his policy of keeping the money supply as tight as possible from Harvard economist Martin Feldstein.

The others are likely to be more critical of Berlin’s approach.

Olivier Blanchard, former chief economist at the International Monetary Fund (IMF), for his party says that he does not “understand the logic of the German position.” The Berkeley professors, Christina and David Romer, laid the groundwork for President Obama’s neo-Keynesian policies. And Takatoshi Ito, now at Columbia University, was a pioneer of Abenomics.


Martin Kölling is Handelsblatt’s East Asia correspondent, covering Japan, North and South Korea and China from Tokyo. Donata Riedel covers economic policy for Handelsblatt. To contact the authors: koelling.martin@gmail.com and riedel@handelsblatt.com 

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