Merkel snubbed calls to spend more public money in Germany as part of a coordinated international stimulus effort, in an interview with the Financial Times newspaper.
She told the British business daily that the business of putting the global economy back in order would not be finished at Thursday’s G20 summit in east London.
“This crisis did not come about because we issued too little money but because we created economic growth with too much money, and it was not sustainable growth,” Merkel said. “If we want to learn from that, the answer is not to repeat the mistakes of the past.”
She also warned against inflated expectations from next week’s gathering of top world leaders in Britain.
“We are talking about building a new global financial market architecture and we will not be able to finish this in London,” she said. “We will naturally not solve the economic crisis either, and we won’t solve the issue of trade. We will definitely need to meet again.”
The chancellor was sceptical about moves for looser monetary policies and bigger public deficits as a way to battle the downturn.
Merkel said she would “expect to see a return to sustainable fiscal policies after the crisis”, saying “states cannot borrow forever.”
“We must look at the causes of this crisis. It happened because we were living beyond our means… governments encouraged risk-taking in order to boost growth. We cannot repeat this mistake. We must anchor growth on firmer ground,” she added.
“We were spending too much to create growth that was not sustainable. It isn’t just that the banks took over too many risks. Governments allowed them to do so by neglecting to set the necessary (financial market) rules and, for instance in the US, by increasing the money supply too much.”
Playing down the notion of a rift between Europe and Washington, she praised US President Barack Obama for being ready to reform financial markets. “We are coming together to make joint decisions, not to compete against each other,” Merkel said.
“We all want the same thing: to put the world economy back on its feet as fast as possible and to prevent such a crisis from happening again.”