German attitude to austerity ‘won’t change’

There will be no change to the German approach to the resolution of the eurozone crisis if the CDU/SPD parties form the next government, according to Financial Times’ associate editor, Quentin Peel.

“The new government will be firmly committed to the euro. However, like the previous government under Merkel, it will be pro-euro but its priority will be to defend the German taxpayer,” Mr Peel told an audience at the Institute of International and European Affairs (IIEA) in Dublin.

There is a looming flashpoint on a key piece of EU legislation, he added. The SPD is in negotiations to form the next government with the incumbent CDU chancellor, Angela Merkel. Talks are scheduled to conclude by mid-December.

The EU Commission is trying to agree the details of a banking union also by next month. The Commission, the ECB and most other eurozone countries want an ESM backstop facility to recapitalise struggling banks across the region. The SPD and CDU are united in their implacable opposition to using taxpayers’ money to fund ailing banks.

Berlin has come in for a considerable amount of criticism in recent weeks for running a huge trade surplus. The argument is that as long as Germany focuses on an export model, massive trade imbalances will persist in the eurozone, which will eventually undermine the viability of the single currency.

Mr Peel, who is the Berlin correspondent for the FT, said if German people ramped up domestic consumption, it would benefit the Chinese economy because most imports came from Chinese companies.

Spanish and Italian firms benefit much more from robust German exports because they supply a sizeable amount of the components for German exports, he added. However, the German economy is suffering from years of chronic under investment from both the public and private sectors in areas such as infrastructure, education and broadband. This could change under the new government, which will create domestic demand.

Growth is never a policy goal for German governments. They see growth as a function of good economic policies which include balanced budgets as this creates an environment that promotes business and consumer confidence, which in turn leads to growth, he explained.

And even though Ms Merkel has ruled out eurobonds in her lifetime, these debt-pooling instruments could be introduced at some point in the future, but only after treaty change.

The biggest reservation Germans have about the euro is widespread disaffection over low interest rates and the impact this is having on the savings rate of an ageing population.


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