German Finance Minister Christian Lindner said at the Davos Economic Forum that the German government cannot increase state budget spending because that would undermine the European Central Bank’s (ECB) efforts to curb inflation.
“Responding to the ECB’s efforts to reduce the inflation rate by increasing public spending would not be good advice,” he said in an interview with Bloomberg.
“If I had to choose between fighting inflation and promoting economic growth, the main task would be to reduce the inflation rate. However, these goals are not contradictory because we can focus on supply-side policies,” Lindner added.
Observers and politicians do not like the state of the German economy. The economy contracted 0.3% last year, although it did not enter a technical recession, defined as two consecutive quarters of economic decline. However, some analysts believe that the German recession could worsen at the beginning of the year.
The country is plagued by problems such as high prices of energy carriers, a higher than recommended level of inflation and reduced exports due to declining Chinese demand.
Lindner stressed that some government policies need to be changed to avoid a recession.
“Our next initiative must be to strengthen our economy through supply-side measures, such as greater flexibility in the labor market, investment in the public sector and reduced regulation,” Lindner said.
In 2022, Germany was hit by a price shock for energy carriers, when Russia launched a full-scale invasion of Ukraine and cut off gas supplies to Germany.
As energy prices gradually fell to pre-war levels, Germany was hit by another crisis late last year, when the Constitutional Court ruled that Olaf Scholz’s government had illegally shifted some spending off the budget regular. The aim of the plan was to cover expenses that would not be reflected in the state budget and to which the strict budget rules stipulated by the German Constitution would not apply.
Recognizing the project as unconstitutional forced the German government to cut public spending by 17 billion euros for the year it began. This, in turn, caused large-scale protests from farmers, because according to the government’s new plans, the preferential rate of excise duty on fuel for vehicles used for agricultural purposes would disappear.
In an interview with Bloomberg, Lindner stressed that he does not intend to support Parliament’s declaration of 2024 as a crisis year, which would allow it to temporarily spend more than budget rules allow.
“There will be no exception to the constitutional debt rule this year,” he said.
2024-01-18 16:56:00
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