Germany says ‘no’ to stimulus

Berlin – Germany is against the world’s top 20 economies launching a fiscal stimulus package in the face of slowing global growth, it said Friday as major financial powers disagreed on the best approach.

Government attempts to boost their economies with monetary loosening could be “counterproductive”, finance minister Wolfgang Schaeuble told a conference ahead of a G20 finance ministers meeting in Shanghai.

Central bankers have come under pressure ahead of the gathering of the world’s top economies to unleash fresh monetary firepower to help stimulate sagging growth and reassure investors.

Japan has already adopted negative interest rates, the European Central Bank has embarked on a huge quantitative easing programme, and the US Federal Reserve has signalled possible delays to interest rate rises.

But Schaeuble said that reforms were more important and “thinking about further stimulus just distracts from the real task at hand”.

Berlin does “not agree on a G20 fiscal stimulus package”, he added.

“Monetary policy is extremely accommodating to the point that it may even be counterproductive in terms of negative side effects,” he said.

“Fiscal as well as monetary policies have reached their limits, if you want the real economy to grow there are no shortcuts without reforms.”

As the European Union’s largest and richest country, Germany often has different economic priorities than other members.

Read also: G20 nations pressed on reforms

Speaking at the same conference as Schaeuble, Bank of England governor Mark Carney retorted: “Several commentators are peddling the myth that monetary policy is out of ammunition.”

The world “risks being trapped in a low growth, low inflation, and low interest rate equilibrium”, he said, adding that monetary stimulus “can buy time for structural adjustments” and the challenges “demand that our firepower is well aimed”.

Similarly, US Treasury Secretary Jacob Lew said earlier this week that fiscal and monetary policy were “important tools”.

“When used together, they’re powerful. And that’s the message we bring,” he told Bloomberg Television.

“It means that in countries that are big economies, regions that have big economies, they need to use policy tools.”

Last week the 34-member Organisation for Economic Cooperation and Development cut its 2016 global growth forecast from 3.3 percent to 3.0 percent.

OECD official Alain de Serres said in Shanghai that monetary policy measures could “save time” but more measures were also needed to boost demand.

“Part of it is fiscal policy but in most cases structural reform can help with demand,” he said.


Schaeuble, known for being frank, has previously openly criticised the ECB for being too accommodative.

The use of spending over the last two decades to mitigate against economic crisis no longer appeared to work, he said Friday, adding that debt levels were too high while growth remained too low.

“The debt-financed growth model has reached its limits,” he said. “If we continue on this path we no longer need to watch television, the walking dead will overwhelm us, particularly in finance and construction.”

He did not specify in which countries such zombie enterprises existed — although they are a perennial issue in China.

The holder of this year’s G20 presidency is China, the world’s second-largest economy, but its slowing growth has roiled global markets and sent prices of some commodities such as base metals plunging, leaving producer countries facing a bleak outlook.

The world’s biggest trader in goods, China’s growth fell to 6.9 percent in 2015 — high compared to most other G20 members but the worst in a quarter of a century and a far cry from the fat years of double-digit increases.

A shock currency devaluation in August followed by another drop in January raised suspicions Beijing was pursuing a currency war to make its exports cheaper — at others’ expense, and a stock market slump has also raised alarms.

Beijing has more room to boost the economy, the governor of the central People’s Bank of China said Friday as he sought to reassure markets.

“China still has some monetary policy space and monetary policy tools to address potential downside risk,” Zhou Xiaochuan said in a possible signal of more interest rate cuts and reductions in the amount banks must keep in reserve.

“We will not resort to competitive devaluations to boost our advantage in exports,” he added.