The International Monetary Fund urges the German government to stop giving balancing the budget a higher priority than investment.
Europe’s richest nation – Germany – is being urged by the International Monetary Fund to spend more to boost its growth potential and that of the entire eurozone.
In a just released report the IMF revealed its wish list for Berlin which includes investing billions in new and upgraded infrastructure including improved internet access.
In addition it would like the government to spend more on childcare and refugee integration.
Income tax cuts are also suggested, along with employers raising wages to help lift eurozone inflation leading to the European Central Bank being able to wind down its stimulus efforts.
The recommendations come after the IMF’s regular consultations with the German government.
Every year the Fund’s experts conduct what are known as ‘Article IV Consultations’ with each of its member countries. They are intended to assess each country’s economic health and to head off any future financial problems.
In its report, the IMF said the German economy is performing well but that business investment lacks momentum. The government has predicting economic growth of 1.4 percent this year.
It concluded that Berlin could make better use of its current account surplus – that’s the difference between the money the government takes in and what it spends. In 2016 that was equal to 8.3 percent of Germany’s gross domestic product. Germany has had a surplus every year since 2014.
— IMF (@IMFNews) May 15, 2017
The IMF was also concerned about the negative effects on long-term growth prospects of a population which is aging at a faster pace than any other country except Japan. In response to that the IMF recommended pension reforms to make it more attractive for Germans to work longer.
No change from Schaeuble
None of this finds favour with Chancellor Angela Merkel and the German Finance Minister Wolfgang Schaeuble who rejects criticism that the country is not investing enough, but who has often said he wishes the European Central Bank would start unwinding its expansive policy.
He recently announced higher tax revenue estimates for this year.
In its response to the IMF report the Finance Ministry didn’t show any inclination to take on board the recommendations. It said: “Structural reforms and budget consolidation are decisive prerequisites to stimulate growth and further improve the climate for private investment.”