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Euro zone puts pressure on Dutch, Germans to spend more

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Euro zone puts pressure on Dutch, Germans to spend more
FILE PHOTO: European Commissioner for Economic and Financial Affairs Pierre Moscovici n Brussels, Belgium, July 10, 2019. REUTERS/Francois Lenoir   -   Copyright  Francois Lenoir(Reuters)
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By Jan Strupczewski and Francesco Guarascio

LUXEMBOURG (Reuters) – Germany and the Netherlands, which run budget surpluses, should invest more to help boost economic growth at home and throughout the euro zone, top euro zone officials said on Wednesday, echoing a call from the European Central Bank last month.

Euro zone economic growth is slowing as its biggest economy, Germany, teeters on the brink of a recession, keeping inflation subdued. But despite an ECB call for a fiscal stimulus, the euro zone is not planning any concerted action.

Instead, top euro zone officials put pressure on Germany and the Netherlands to use their “fiscal space” – EU jargon for sound public finances – to invest more and boost growth in their own economies and in the whole euro zone.

“There are two kinds of countries – those who need to go further with their fiscal efforts and those who need to invest in growth. Namely Germany and the Netherlands have to understand that, because it is in their own interest and in the collective interest of the euro zone,” European Commissioner for Economic and Financial Affairs Pierre Moscovici said.

In a discussion paper, the European Union’s executive arm said the slowing euro zone economy needs pre-emptive fiscal stimulus or it will face a long period of low growth and that economic activity will not rebound this year.

The chairman of the 19 ministers representing euro zone countries, Mario Centeno, said fiscal policy in the euro zone should respond to the economic situation.

“The fiscal stance must play together with the economic conditions of the euro zone,” Centeno told reporters. “We need to look carefully …who has fiscal space to act and … who does not, (so that they) continue to reduce their debt.”

French and Italian finance ministers also urged Germany and the Netherlands to act.

“… Member states with more fiscal space should make use of this fiscal space to have overall an aggregate fiscal stance of the euro area that is appropriate, taking into account the macroeconomic situation,” Italy’s Roberto Gualtieri said.

The Commission paper underlined that governments had to move quickly because it took time for fiscal policy changes to affect the economy.

However, German Chancellor Angela Merkel has resisted calls to draft a fiscal stimulus package for her country, and some officials said that even two quarters of contracting gross domestic product — a recession — might not be enough to make Berlin loosen its purse strings.

The Commission document said that to spur growth, further ECB monetary policy easing would be less effective and have larger unwanted side effects than fiscal stimulus by governments, which now would be more effective than in normal economic times.

(Reporting By Jan Strupczewski and Francesco Guarascio; editing by Larry King)

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