As growth in Germany fades, Merkel hints at shift in policy
As evidence grows that the German economy, the largest in Europe, is beginning to stall, Chancellor Angela Merkel expressed a growing willingness to use government spending to stimulate growth, a possible shift in position that could ripple across the entire eurozone.
Merkel’s new tack, signaled in a Berlin news conference Thursday, may be partly a response to increasingly clamorous criticism from the International Monetary Fund, independent economists and fellow Europeans that her long-standing emphasis on balancing the federal budget needs to give way to pumping more money into the lethargic German economy.
If Germany in fact gives itself a bit more spending latitude, it would no doubt fuel the demands from its eurozone neighbors, most notably France, to have more budgetary flexibility to stimulate their own economies.
Mainly, though, its neighbors are counting on Germany to lead by example.
As the biggest economy in the 18-member eurozone and the one that in recent years was growing enough to at least partly offset economic softness elsewhere in the region, Germany drives demand in the bloc. Other countries in the region have watched with growing alarm as indicators have suggested that the standard-bearer might be stumbling.
On Thursday, Mario Draghi, president of the European Central Bank, said in effect that eurozone countries that have enough money should spend it — a clear reference to Germany.
“For governments that have fiscal space, then of course it makes sense to use it,” Draghi said during an appearance at the Brookings Institution in Washington. He drew laughter when he added, “You decide to which country this sentence applies.”
Faced with what she acknowledged were “somewhat worsened” forecasts for the German economy, Merkel said her government was examining how to encourage investment, particularly in the “digital sphere” and the energy sector.
It suggested a new push to Germany’s program to abandon nuclear power and expand renewable energy sources. It might be a recognition, too, that lower energy costs in the United States have been luring away investment by German companies.
The German national statistics office said Thursday that exports slumped 5.8 percent in August compared with July, more than expected. It was the sharpest drop since 2009, in the aftermath of the global financial crisis. And it was the latest in a series of indications that Germany’s export-driven economy was losing momentum, in part because the conflict in Ukraine has made businesses cautious and unwilling to invest.
Speaking in Washington on Thursday, Draghi said he was optimistic that eurozone political leaders would undertake difficult economic changes, because their survival depended on it.