WASHINGTON: The International Monetary Fund is again urging Germany to continue to boost its spending to raise growth and lagging wages, but German Finance Minister Olaf Scholz said Friday Berlin had already done so.
“We continue to see a case for eurozone countries that have fiscal space, like Germany, to increase spending or cut taxes to help boost potential growth,” Poul Thomsen, head of the IMF European Department, told reporters.
He highlighted Germany’s very large budget and trade surpluses, which traditionally would have caused the national currency to strengthen, something that is no longer possible given the common currency in the eurozone.
That means that, even with low unemployment, wages are rising very slowly, Thomsen said.
Increasing spending would help accelerate growth and reduce the surpluses that have become a point of friction with Germany’s trading partners.
Scholz however denied that Germany was not doing enough to stimulate its economy.
“We have a very expansive investment strategy,” he said at a briefing on the sidelines of the spring meetings of the IMF and World Bank.
And Berlin is increasing public investment in infrastructure, education and the digital economy.
“We did already what everybody is asking us.”
Thomsen acknowledges that Germany’s spending increase in 2019 amounts to 0.7 percent of the economy, which he called “notable,” but he said “we need to see more and keep it coming.”
Raising wages is a more difficult problem, since the government is not involved in those decisions.
French Finance Minister Bruno Le Maire warned Friday that ongoing disputes over economic policy “could result in the disappearance of the common currency project.” —AFP