German finance minister defends spending after IMF criticism

Germany has a "very expansive investment strategy" that is helping to stimulate the global economy, German Finance Minister Olaf Scholz said on the sidelines of the IMF and World Bank spring meetings in Washington on Friday, adding that "politically produced" risks had instead caused global uncertainty.

"We have already done what everybody asked of us," he said, citing recent budgetary increases for Germany's public infrastructure, its education sector and digitalization projects.

Read more: German exports hit by global slowdown

As risks, he cited trade disputes, including US spats with China and Europe, as well as Brexit, which on Wednesday saw the United Kingdom and the European Union agree to a further delay until October.

IMF wants 'more' from Germany

Poul Thomsen, the head of the IMF's European Department, cited Germany's large trade surplus and sluggish wage increases as problematic, telling reporters in Washington that Berlin could do more, given its fiscal strength and the eurozone's low interest rates.

"We want to see more," said Thomsen, referring to an IMF global outlook report published Tuesday that lowered global growth predictions. He also cited a half-point cut in Germany's gross domestic product (GDP) as a slowdown factor. 

Germany as a major export-led eurozone country still has "fiscal space" to increase spending and also "cut taxes to help boost potential growth," said Thomsen, reiterating a similar IMF criticism issued last year.

Japan urges 'timely action'

Friday's contradictory remarks coincided with a call in Washington by leading officials from Japan, who currently chairs the Group of 20 (G20) economic nations, for "timely policy action" and a return to multilateral global cooperation.

Scholz, a Social Democrat (SPD) who also serves as vice-chancellor in Chancellor Angela Merkel's grand coalition Cabinet, said Berlin was sticking to its practice of balancing the federal budget in recent years, a policy known in German as the schwarze Null (black zero).

Read more: Billions to be injected into German rail network

Merely a 'dent'

Referring to an IMF forecast of only 0.8% economic growth in Germany this year compared to 1.5% in 2018, Scholz insisted: "We are not in a recession."

Instead, Germany was merely experiencing slower growth, and there were signs that its economy would pick up at the end of this year, Scholz said, adding that Germany's shortage of skilled workers was not a typical warning sign for an imminent recession.

German Bundesbank President Jens Weidmann, who accompanied Scholz in Washington, said the slowdown was a "dent" caused by a cooling of the world economy. He added that for Germany, "the economic picture is not one of a dramatic downturn that would now require stimulus packages."

Defense spending rising

Acknowledging lingering US demands that Germany boost its defense spending, Scholz said that compared with 2017, Berlin had raised its defense budget by more than 15%.

"Big changes don't happen overnight," he said.

While also visiting the Pentagon for talks with acting Defense Secretary Patrick Shanahan, German Defense Minister Ursula von der Leyen said that Germany's defense spending had risen over the past six years.

"We know that Germany has to do more," she conceded, but added that by 2024, Germany's military budget would equate to 1.5 percent of its GDP.

In 2014, NATO nations agreed to a target of 2% of GDP for defense spending.

ipj/ng (dpa, AFP, Reuters)

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