Should Germany boost spending to help revive Europe?

Germany faced renewed pressure on Friday to boost public spending and help revive a sputtering European economy, a day after the European Central Bank warned it had reached the limit of its powers to avert recession.

Should Germany boost spending to help revive Europe?
Finance Minister Olaf Scholz attending a meeting in Helsinki on Friday. Photo: DPA

The economy in Europe is in slowdown, tripped up by the US-China trade war and rising fears of a chaotic Brexit that have especially harmed export-powerhouse Germany.

To stave off a downturn, the ECB on Thursday cut its already negative interest rates and relaunched a round of bond-buying stimulus, but bank head Mario Draghi urged governments to do more to spark the economy.

The message was especially intended for fiscally-cautious Germany, and in a rare singling out of the eurozone's most powerful member, the head of the Eurogroup of eurozone finance ministers also took Berlin to task.

“My message is quite clear: countries with fiscal space should use it to counter the slow down of the economy,” said Mario Centeno, who is also Portuguese Finance Minister, in response to a question on Germany.

“And this must be done, not for reason of solidarity with the others but first and foremost for their own sake,” added Centeno who is usually very cautious in his treatment of Berlin.

Centeno spoke just days after the German government yet again unveiled a zero-deficit budget that flew in the face of the wide-ranging calls for more spending, including by the IMF, top economists and the European Commission.

France has voiced the loudest calls that Berlin abandon low spending, a point finance minister Bruno Le Maire repeated on Friday.

“We should not be satisfied with the level of growth within the eurozone,” Le Maire said as he arrived for talks with his EU counterparts in Helsinki.

“It is now the time to decide and have more investments, more growth, more prosperity and more jobs within the eurozone,” he added.

His Luxembourg counterpart, Pierre Gramegna, also urged more from Germany.

“Countries that have worked well to balance their budgets and have room for manoeuvre, should use it,” he said.

READ ALSO: 'Germany will do what's needed without new debts'

Germany is led by a fragile coalition, headed by centre-right Chancellor Angela Merkel, in which the centre-left has not dared snap five straight years of balanced budgets, a policy known as “black zero”.

But European sources told AFP that behind the scenes, Berlin was giving ground on the hot-button issue, with quiet pledges to deliver a spending package if the European economy turned starkly worse.

German Finance Minister Olaf Scholz was not drawn on the issue on Wednesday, insisting only that the ECB was an independent institution.

But earlier this week Scholz, who is centre-left, told German lawmakers the country was “in a position, with the financial fundamentals we have, to respond with many, many billions, if indeed an economic crisis erupts in Germany and Europe.”

'Count Draghila'

A German pivot to deficit spending would be historic and sure to face opposition of Scholz's governing partner, Merkel's centre-right CDU, which is already furious at the ECB's loose monetary policy.

German popular opinion is also highly sensitive on loosening the purse-strings, often depicted in the media as a sop to overspending southerners, such as Italy, Spain or France.

Reacting to the ECB's fresh stimulus, Bild, Germany's most read newspaper, on Thursday depicted Draghi as a Count Dracula sucking blood from German savers.

“Count Draghila is sucking our accounts dry,” the paper said.

In his monthly policy meeting on Thursday, Draghi said fiscal policy must become the “main instrument” for fixing the European economy.

By Alex Pigman

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The Euro celebrates its 20th anniversary

The euro on Saturday marked 20 years since people began to use the single European currency, overcoming initial doubts, price concerns and a debt crisis to spread across the region.

The Euro celebrates its 20th anniversary
The Euro is projected onto the walls of the European Central Bank in Brussels. Photo: Daniel Rolund/AFP

European Commission chief Ursula von der Leyen called the euro “a true symbol for the strength of Europe” while European Central Bank President Christine Lagarde described it as “a beacon of stability and solidity around the world”.

Euro banknotes and coins came into circulation in 12 countries on January 1, 2002, greeted by a mix of enthusiasm and scepticism from citizens who had to trade in their Deutsche marks, French francs, pesetas and liras.

The euro is now used by 340 million people in 19 nations, from Ireland to Germany to Slovakia. Bulgaria, Croatia and Romania are next in line to join the eurozone — though people are divided over the benefits of abandoning their national currencies.

European Council President Charles Michel argued it was necessary to leverage the euro to back up the EU’s goals of fighting climate change and leading on digital innovation. He added that it was “vital” work on a banking union and a capital markets
union be completed.

The idea of creating the euro first emerged in the 1970s as a way to deepen European integration, make trade simpler between member nations and give the continent a currency to compete with the mighty US dollar.

Officials credit the euro with helping Europe avoid economic catastrophe during the coronavirus pandemic.

“Clearly, Europe and the euro have become inseparable,” Lagarde wrote in a blog post. “For young Europeans… it must be almost impossible to imagine Europe without it.”

In the euro’s initial days, consumers were concerned it caused prices to rise as countries converted to the new currency. Though some products — such as coffee at cafes — slightly increased as businesses rounded up their conversions, official statistics have shown that the euro has brought more stable inflation.

Dearer goods have not increased in price, and even dropped in some cases. Nevertheless, the belief that the euro has made everything more expensive persists.

New look

The red, blue and orange banknotes were designed to look the same everywhere, with illustrations of generic Gothic, Romanesque and Renaissance architecture to ensure no country was represented over the others.

In December, the ECB said the bills were ready for a makeover, announcing a design and consultation process with help from the public. A decision is expected in 2024.

“After 20 years, it’s time to review the look of our banknotes to make them more relatable to Europeans of all ages and backgrounds,” Lagarde said.

Euro banknotes are “here to stay”, she said, although the ECB is also considering creating a digital euro in step with other central banks around the globe.

While the dollar still reigns supreme across the globe, the euro is now the world’s second most-used currency, accounting for 20 percent of global foreign exchange reserves compared to 60 percent for the US greenback.

Von der Leyen, in a video statement, said: “We are the biggest player in the world trade and nearly half of this trade takes place in euros.”

‘Valuable lessons’

The eurozone faced an existential threat a decade ago when it was rocked by a debt crisis that began in Greece and spread to other countries. Greece, Ireland, Portugal, Spain and Cyprus were saved through bailouts in return for austerity measures, and the euro stepped back from the brink.

Members of the Eurogroup of finance ministers said in a joint article they learned “valuable lessons” from that experience that enabled their euro-using nations to swiftly respond to fall-out from the coronavirus pandemic.

As the Covid crisis savaged economies, EU countries rolled out huge stimulus programmes while the ECB deployed a huge bond-buying scheme to keep borrowing costs low.

Yanis Varoufakis, now leader of the DiEM 25 party who resigned as Greek finance minister during the debt crisis, remains a sharp critic of the euro. Varoufakis told the Democracy in Europe Movement 25 website that the euro may seem to make sense in calm periods because borrowing costs are lower and there are no exchange rates.

But retaining a nation’s currency is like “automobile assurance,” he said, as people do not know its value until there is a road accident. In fact, he charged, the euro increases the risk of having an accident.