• Germany's news in English
 
jobs_header_v3

Germany: Slashing debt is the only way

The Local · 12 Oct 2012, 10:03

Published: 12 Oct 2012 08:23 GMT+02:00
Updated: 12 Oct 2012 10:03 GMT+02:00

Facebook Twitter Google+ reddit

"There's no alternative to reduce in the medium term too high sovereign debts, especially, and of course for... the eurozone as a whole," Wolfgang Schäuble said in a debate with IMF Managing Director Christine Lagarde in Tokyo.

Lagarde on Thursday appeared to soften on the need for heavily-indebted countries to trim their fiscal cloth, when she said: "Instead of frontloading heavily it is sometimes better... to have a bit more time."

She said the IMF was happy for debt-addled Greece to have another two years to get its fiscal house in order and bring budget deficits down to levels agreed with international creditors.

But in a debate on the sidelines of the International Monetary Fund's annual meeting in Tokyo, which was briefly interrupted by an earthquake, Schäuble cautioned against any slippage.

"I think it's even more important for sustainable growth that investors and consumers have some confidence," he said.

"We have to stick to what we announced and we have to implement it step by step."

Lagarde, who earlier in the day said "wartime levels" of debt were the "greatest roadblock" to future growth, said her position had not changed, insisting debt-reduction was vital, but that it was a matter of timing.

Consistently we've said the same thing: that adjustment... or fiscal consolidation... is necessary.

"But it's a factor of pace. You know, at which pace does it happen?"

Lagarde said austerity could not be the only medicine for troubled economies, pointing to the human cost of cuts.

"If people stay away from the job market, they lose hope... which is why it's critical that while maintaining those policies of fiscal consolidation where these are needed, there is also concern for growth, so that jobs can be created."

Commentators have suggested that Lagarde is shifting the IMF's stance on the need for austerity, at least partially, in response to the stumbling world economy.

The Fund's latest forecast, released this week, said the global economy was on track to grow 3.3 percent in 2012, down from its July estimate of 3.5 percent.

The pace of growth next year would also be moderated, forecasters said, suggesting an expansion of 3.6 percent next year, also lower than a July estimate of 3.9 percent.

Jaco Kirkegaard, an economist at the Pesterson Institute in Washington said Lagarde's emphasis on the need for a more nuanced approach to debt was not a sudden policy adjustment.

"I think it is part of the longer-term shift in the IMF's position that has been under way for some time, which has seen the IMF move to a gradually more flexible stance on the need for austerity," he said.

Jaco said the situation in Europe, where a number of large economies were engaging in belt-tightening, supported Lagarde's emphasis on tailor-made policies.

"In Europe there is obviously the spillover effects, from when all your neighbours are doing austerity... it will affect you as well.

"As such, her remarks are part of a well-founded, empirically-based shift of the IMF views on the scale of austerity required in the current economic climate in the euro area."

AFP/bk

The Local (news@thelocal.de)

Facebook Twitter Google+ reddit


Your comments about this article

09:16 October 12, 2012 by pjnt
In two years time they will ask for another 2 years. Like they have already done with so many other items. Also like they have done with money. Just a little now and we will be fine. Oh, just a little more and we will be fine.

Who are the fools, really? Those that keep asking, or those that keep giving?
09:39 October 12, 2012 by smart2012
Scheuble/Verkel want the coin from both side. From one side they want Greece to reduce fast its debt (cause german companies invested the most money in Greece), from the other side they want to keep Greece paying super high interest rates on its debt (so that Germany can favour by paying very low interest rate on German debt)... Smart....

The good story of this is that by doing this silly strategy they are killing Germany too... see recession, as the export is dying and internal demand is always low in Germany. And with Germany having the biggest debt in Europe, going in recession is dangerous...Well done Verkel!
10:01 October 12, 2012 by MrNosey
A few facts, smartguy. France invested more in Greece than Germany. Germany does not have the biggest debts in Europe. Greece is a pin-prick in economic terms and is not going to bring anyone down except itself. Go back to your Ouzo.
10:09 October 12, 2012 by ChrisRea
@ smart2012

You might be smart, but you definitely ignore the facts. Beside what MrNosey contributed, you should know that Germany's export is far from dying. For starters, try reading the articles on TheLocal, such as "Exports post surprise plus in August" (8 Oct 2012) http://www.thelocal.de/money/20121008-45423.html

Wait, you commented on that article, so supposedly you read it. You claimed there that Angela Merkel is not charismatic, just a few days after the polls showed the highest approval for her. Hmm, maybe I should reconsider the assumption about your smartness.
11:22 October 12, 2012 by michael4096
One thing I have noticed working in Germany is that people are prepared to work very hard to ensure that plans are doable, fair etc. etc. But, once agreed by all, perhaps because they work so hard creating them, the German way of doing things is to stick to the plan. They really do not like modifying their approach.

This is a very useful attribute that results in many fewer half-built bridges and things than in most countries - as well as BMWs and Mercs. However, if circumstances change, as they frequently do in long term planning, it can get in the way. In the UK, US and maybe Greece mindsets are much more flexible at changing approaches mid-activity - with the associated advantages and disadvantages.

I honestly do not know whether conditions have changed enough for a re-drawing of the plan but I do understand both Germany's "just stick with it" attitude and Greece's "we just need to alter it a little bit" frustration.
12:56 October 12, 2012 by jpl82
What i get from the article and page 41 of the IMF report is that the IMF got it's sums wrong. It reckoned that for every euro in more tax etc you only took out 50 cent from the ecomomy and it turns out that it has taken 90 cent to 1euro 70 from the economy. So austerity actually made thinks a lot worse, maybe twice as bad. Slowing down the cuts and increasing grow policies can get the ecomomies back on track. I'm not sure exactly what the german minster said but it seems like he's saying that he doesn't care about what the IMF has said he still reckons it's working. Needless to say I think he has his head in the sand.
13:00 October 12, 2012 by manosd73
@Mr Nosey...

http://nationaldebtclocks.com/germany.htm
15:34 October 12, 2012 by honeybeee
Slashing debt is definitely a very clever and right way ,it seems it is not only suitable to a country¦#39;s situation in the current depression time ,but also fit for a company¦#39;s reformantion development and improving .Like german auto-parts maker Schaeffler Ag , they recently reduce its debt which existed in the last 1.5 years. Now it is observed the whole Schaeffler group become more light in burden than the last 1.5 years ago .Just in this case , Schaeffler make a wise step as the whole market situation proves it already , now they can focus more in R & D and innovation development which are essential in this rapidly changing world to become a key point to make them succeed in this fierce competition market again . So slashing debt is exactly the only way fit for both a country and a corporate during the development way of solving problem .
17:40 October 12, 2012 by smart2012
thanks manosd73 :-) And yes, in absolute terms German debt is the biggest in Europe.

Chris Rea, overall data shows that Germany is going into recession. PMI is down, August export increased however annually is down. But feel free to be happy keep thinking that Germany is booming... LOL

Re Merkel poll, 2 months ago Merkel was falling down, now suddenly she is going up again (maybe cause we are getting closer to election???). And when I look at recent elections, CDU has lost everywhere.

Be happy, keep supporting Verkel, then in two years we will be here still talking about recession.. I just thank the French who got rid of Sarkozy..
19:15 October 12, 2012 by ChrisRea
"August export increased however annually is down"

Yes, indeed. Let's look at the latest figures for Germany's exports:

May 2012: +0.5% over May 2011

June 2012: +7.4% over June 2011

July 2012: +9.2% over July 2011

August 2012: +5.8% over August 2011

January-August 2012: +5.5% over January-August 2011

Just like you said. "Export is dying."

PMI changes are pretty much within the normal range. And the trend is actually upwards "The final seasonally adjusted Markit Germany Composite Output Index ­ which measures the combined output of the manufacturing and service

sectors ­ rose from 47.0 in August to 49.2 in September." Source: Markit Economics

Tax revenues: +8.6% over previous year (August 20, 2012)

Public debt decrease in 2012: 1.9% of GDP compared to 2011

Yep, that is exactly how recession looks like.

So you say Merkel is getting more and more popular because the elections are coming? So all other German politicians should get also more popular? Interesting idea.
21:29 October 12, 2012 by smart2012
No comment :)

http://www.nytimes.com/2012/09/07/business/global/oecd-warns-of-recession-in-germany.html

http://www.bbc.co.uk/news/business-19462611

Not sure where u live nor what u read :)
02:58 October 13, 2012 by mitanni
That's nice. Unfortunately, Germany's debt is worse than Spain's. Is Germany going to cut back its welfare state?
08:31 October 13, 2012 by ChrisRea
Good, it is nice to see that the "export is dying" claim died itself.

What I read? I assume we have pretty much the same sources, but I check them more often. Ah, OECD expected beginning of September that Germany will shrink in Q3? Well, according to the figures released in October, that's not going to happen.

Interesting that you found the PMI figure of 44.7 in August relevant (which is reflecting only within the manufacturing sector), but not the Composite Output Index, which includes also services and was at 49.2 in September.

"Is Germany going to cut back its welfare state?" - well, Germany's public debt is decreasing. I would say this is the way to go, just like Mr. Schäuble stated as well.
10:00 October 13, 2012 by smart2012
Ok rea, next time OECD, ny times, bbc, ifo etc etc will ask u :) btw, there was even an article two days ago on data showing recession in Germany

http://www.thelocal.de/money/20121011-45493.html

But I see u did not comment it.. Not good enough for u right?

But am glad u said German debt is the biggest in Europe, and as I can see in the link above total german debt is increasing..
10:39 October 13, 2012 by mitanni
"well, Germany's public debt is decreasing."

What are you smoking? Germany keeps borrowing more than it earns and its total debt is, of course, going up. And the demographic cliff is just starting to happen.
10:59 October 13, 2012 by smart2012
Rea, another point.. I remember u love and were defending Oktoberfest right? Just for you to know, this has been the first year of less visitors at Oktoberfest, app in the range of half a million people (ie lets say including hotel etc a person will spend 400 euros over the weekend = 200 million euros less).. Just a sign..
13:45 October 13, 2012 by ChrisRea
"an article two days ago on data showing recession in Germany" - Really? I reread the article and there is no data showing recession. "Germany clocked up growth of 0.5 percent in the first quarter and 0.3 percent in the second quarter", "gross domestic product (GDP) was projected to grow by 0.8 percent overall this year and by 1.0 percent next year", "a downgrade from the institutes' previous spring forecasts when they had been pencilling in growth of 0.9 percent for this year and 2.0 percent for next year". So we talk about slow growth, not recession. Recession means decline in economic activity, not (slow) growth.

"Germany keeps borrowing more than it earns and its total debt is, of course, going up." - Would you care to substantiate your opinion with figures? The Americans tend to disagree with you. Their figures for Germany's public debt: 83.4% of GDP (2010 est.), 81.8% of GDP (2011 est.)

https://www.cia.gov/library/publications/the-world-factbook/fields/2186.html

"Rea, another point.. I remember u love and were defending Oktoberfest right?" - No, you are mistaking me with somebody else. It's not that bad, it happens. It is more important to pay attention to facts. While I tend to enjoy German festivals, Oktoberfest is too big and too commercial for my taste. I have never been there and I do not plan to.
14:34 October 13, 2012 by smart2012
All German data has slowed down in the last 6 months, which brings Risk of recession in Germany
07:27 October 14, 2012 by mitanni
"Would you care to substantiate your opinion with figures? The Americans tend to disagree with you. Their figures for Germany's public debt: 83.4% of GDP (2010 est.), 81.8% of GDP (2011 est.)"

I see... you simply don't understand the difference between "total debt" and "debt relative to GDP".

Furthermore, no matter what you look at, a single annual decline wouldn't tell you anything; there was a huge jump in public debt even relative to GDP from 2009 to 2010, and fiscal discipline in Germany has not improved.

A country can grow itself out of debt or it can cut spending, but neither is likely going to happen in Germany any time soon.
11:05 October 14, 2012 by ChrisRea
Ah, so we dropped the claim of recession. It is only about a risk of recession now. Good, that's a step forward.

It is generally accepted that it makes sense to measure the public debt relatively to GDP, as the absolute debt says little about the financial situation. The same amount might be small for a country and a lot for another one.

"fiscal discipline in Germany has not improved" - Would you care to provide some figures? As far as I know, the budget gap for 2012 decreased to 31 billion euros (from 34.8 billion euros last year). I would find 10% a significant improvement towards a balanced budget.
Today's headlines
Nazi POW leaves estate to 'kind' Scottish village
The former German soldier stayed on to work in the Perthshire village for a time after the war. Photo: Andy Buchanan / AFP file picture

A former Nazi prisoner of war has left his entire estate in his will to a small village in Scotland to show his appreciation for the kindness he received there during his captivity.

US tries to block Chinese purchase of Aixtron
Photo: Oliver Berg / DPA / AFP

US President Barack Obama on Friday moved to block a Chinese company's purchase of German semiconductor equipment maker Aixtron by rejecting the inclusion of Aixtron's US business in the deal.

Merkel to chart 2017 election battle at party congress
Photo: Tobias Schwarz / AFP

After Donald Trump's shock victory, Francois Hollande's decision not to seek re-election and populism on the rise, German Chancellor Angela Merkel is next up on the campaign podium to set out her strategy for winning in 2017 polls.

Berlin vs Munich: whose newborn polar bear is cuter?
Berlin's (left) and Munich's (right) newborn bears. Photos: Tierpark Berlin / DPA

Both city zoos welcomed baby polar bears into the world in November, with Berlin zoo its releasing first photos on Friday. But which one is more adorable?

Learn how to speak German like a silver screen icon
Dirty Harry. Photo: DPA

We all agree that there is no other option than to learn irregular German verbs by rote. But when you want a bit of downtime, why not learn from your big screen heroes?

Stolen Dachau 'Work will set you free' gate found: police
The entrance to Sachsenhausen concentration camp. Photo: DPA

An iron gate from the former Nazi concentration camp in Germany's Dachau with the slogan "Arbeit macht frei" ("Work will set you free") has been found two years after it was stolen, police said Friday.

Mystery flight path artist draws new message in sky
Photo: DPA

A pilot who likes to draw patterns in the sky using his flight path has returned with his greatest artwork yet.

Berlin 'abusing power' to stop Snowden coming to Germany
Edward Snowden. Photo: DPA

Opposition parties have accused the coalition government of overstepping its authority in its attempt to block American whistleblower Edward Snowden's trip to Germany.

Germany gains record number of Michelin-star restaurants
Head of the Michelin Guide, Michael Ellis (centre) with Michelin-star chefs at a presentation in Berlin. Photo: DPA.

Germany had a slew of newly minted Michelin-star restaurants this year, and its top-rated establishments held onto their prestigious three stars.

At last: Germany passes major disabled rights reform
People in wheelchairs watch as the German parliament deliberates on the new disability rights reform. Photo: DPA.

For years people with disabilities in Germany have called for legislation to provide them with better benefits and opportunities in life and work. On Thursday the German parliament passed such a reform - but is it enough?

Lifestyle
10 German Christmas cookies you have to bake this winter
Sponsored Article
The key to launching your international career
Lifestyle
Our 10-step guide for doing Christmas just like a German
National
Here's why so many Germans vote for the far-right AfD
National
7 events in Germany that'll make December unforgettable
Lifestyle
7 frosty German sayings to make you a winter wordsmith
National
This is how unequal German society has become
National
Six things you should know about the Lufthansa strike
National
9 ways living in Germany will make you a better person
National
These 10 German Christmas markets cannot be missed
Features
8 German words that unlock amazing secrets in English
Culture
10 German words with simply hilarious literal translations
Lifestyle
7 things Germans do that make foreigners feel awkward
International
Why Donald Trump's grandad was booted out of Germany
National
This is what is really inside your Döner kebab
National
Rejoice! Christmas markets start opening across Germany
Education
These German universities are best at landing you a job
Travel
Why Heidelberg is Germany's most inspiring city
Lifestyle
This soppy German Christmas ad will bring you to tears
National
Here's where Germans speak the best (and worst) English
Culture
10 German books you have to read before you die
Culture
U-Bahn train found filled with autumn foliage in Berlin
Features
Seven German words that unlock amazing secrets about English
Travel
Germany's ten most beautiful towns you've never visited
6,591
jobs available
Toytown Germany
Germany's English-speaking crowd