According to the latest European forecast, Germany could see a slight contraction in GDP growth in the third quarter of this year. This could have a negative knock-on effect on the Eurozone slowing down growth. European trade tensions and the possibility of a disorderly Brexit are also having an impact.
To discuss this and more, The Global Conversation spoke to German Finance Minister Olaf Scholz.
To watch the full interview please click on the player above.
Efi Koutsokosta, Euronews: How close are we to a real recession?
We are not close to a real recession. We have slower growth. This is something to do with trade tensions worldwide. And anyone knows if these tensions cease, we will have a completely different scenario. It is a man-made problem, as Christine Lagarde said when she was the head of the IMF. And if I look at the messages we get from the debates between China and the United States, it looks like they will come to a solution and this will have a good impact on the development of the world economy. On the other hand, if you look at Europe or Germany you will find there is still a very stable economic situation. And if you look in particular at Germany, you will also see there is an all-time high rate of employment, that there are a lot of branches that are looking for skilled labour. If some hundred thousand people from somewhere knocked at their door, they would be employed immediately. And we have in the construction industry, for instance, a lot of problems coming from the fact they are not able to serve all the demands they have.
Efi Koutsokosta, Euronews: Many argue Germany still has spare fiscal capacity which could be used to boost growth and domestic demand. Do you see the need to raise wages or introduce tax cuts to provide this boost?
It is a little bit of a theoretical debate. I sometimes get the idea people just read the papers they wrote five years ago without looking at the reality. We have a very expansionary financial policy with an all-time high level of public investment. We will continue with this over the next few years. And this will be supported by the government's new decision to fight climate change. This is an extra investment of €150bn over the next 10 years just to tackle this question.
Efi Koutsokosta, Euronews: You are describing a picture that does not really reflect what we are seeing in Europe and the rest of the world. So you don't see any need to take new measures or preventative measures?
We have lowered taxes for low and middle-income households. We have now abolished a tax which we put in place at the beginning of the 90s just to finance German re-unification. And so there are a lot of impacts for the Germany economy. And if you look at the figures, you can see this helps. Really, it's a stable part of the German economy.
Efi Koutsokosta, Euronews: Another issue that came as a surprise here in Brussels is your proposal to finish something the banks have been looking at for the past seven years - a banking union. In your proposal, you have moved away from what was traditionally a German red line - the deposit insurance scheme. Does this mean that now, if there is a new financial crisis, Germany is ready to pay to save the banking systems of the weakest member states?
No-one should stick behind his wall. We have to understand that building a banking union is a really big task, and the first view we should have is the view from the United States. This is a big country with a banking union and we should learn from them what we need to do. If we want to have something like this in the European Union - and we should be looking at a complete banking union - then we should define the steps needed to get there and not just discuss about one step or another step. Or not doing anything which has been the case for the last few years.
Efi Koutsokosta, Euronews: Is this your own personal point of view or is it an official government position?
It was my idea to re-open this debate and to discuss about all of the necessary elements for a banking union, for instance. We need something that will work with the smaller banks similar to the FDIC (insurance coverage) in the United States. We need a solution to the question of bank insolvency. We cannot have completely different regulations in different countries on this issue.
Efi Koutsokosta, Euronews: In reality, is there something at stake here? Is Europe's banking system not safe enough?
If we open a debate now in the same way we have in the past which was reading papers and doing nothing, it will take a long time to find a compromise solution. And afterwards, it will be hard work producing the legal text and carrying out the necessary work to get it done. And so it's better to start now ahead of a crisis which we do not yet face.
Efi Koutsokosta, Euronews: And let's discuss politics now. You are also a candidate for the leadership of the SPD.We know the SPD lost ground in the last election. Do you still support the coalition with the Conservative Party?
We are in a coalition with the Conservative Party because it was not possible to form another government after the last election. And you know this is not an easy coalition and after the next election, it will obviously not be a continuation of our government.
Efi Koutsokosta, Euronews: For example, your voters think you are very similar to your coalition partner. I'm asking if you still support or you want to see another way forward for your party?
It's up to the party to take a decision in December in Congress about this question. I'm absolutely sure anyone knows if you are in a government which is doing what it is agreed upon, you cannot just say I go without a reason.
Efi Koutsokosta, Euronews: Last question about a very important debate here in Brussels - the European budget. Are you ready to contribute something more to this budget? Is the one percent, the absolute red line?
This is what many countries, including Germany, suggested. Even this is an increase in the money we currently spend. And now we will see what is going on. And I hope that an agreement can be reached earlier than in the German presidency. Not because we will not be able to find a solution together with the others. But it would be too late. The next multi-annual financial framework starts in 2021 and if we only agree on this seven-year period in October or November or December, then next year many projects could be postponed and this would be a pity.