Growth through fiscal policy ‘limited’

Bundesbank president Jens Weidmann has said the room that governments have to stimulate growth through fiscal policy is often more limited than commonly believed.

Growth through fiscal policy ‘limited’

Fiscal leeway “is usually much smaller than many think”, Weidmann told reporters in Cairns, Australia.

“It is limited by European rules, national rules, it is impacted by high debt levels, the demographic burdens we will face, but also by the credibility of a sustainable fiscal policy.”

“And that’s true specifically for Germany, which has to cater to its role as confidence anchor in the monetary union,” he said after a meeting of G20 finance ministers and central bankers in Cairns.

Policymakers including US treasury secretary Jacob Lew have urged Europe to bolster demand, with Canadian finance minister Joe Oliver saying some European countries should consider additional fiscal measures.

G20 economies will “continue to implement our fiscal strategies flexibly to take into account near-term economic conditions”, while putting debt as a share of GDP on a sustainable path, finance chiefs said in a statement.

“We are currently in a situation of normal capacity utilisation and therefore no fiscal stimulus is needed from the German perspective,” Weidmann said.

“If one takes on a European perspective, one shouldn’t overestimate how big the effect of a German stimulus programme would be on other countries.”

German finance minister Wolfgang Schäuble said eurozone governments are committed to helping achieve a G20 target of lifting GDP by an additional 2% or more over five years.

“We feel an obligation toward the 2% goal and will make our contribution,” he said at a press conference in Cairns.

At the same time, he noted that “higher deficits won’t lead to higher growth. If anything, the opposite is the case.”

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