Lindner Says Too Much German Public Spending Would Undermine ECB
(Bloomberg) -- Germany can’t go on a public spending spree as this would undermine the European Central Bank’s efforts to tame inflation, according to Finance Minister Christian Lindner.
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“It would not be good advice to counter the ECB’s efforts to reduce the inflation rates by more public sector expenditures,” he said in an interview on Bloomberg Television. “If I would have to make some choice between fighting inflation and fostering growth, then in the first instance we have to reduce the inflation rate.”
Still, “I think this is not really a conflict, because we can focus on the supply side policies,” he said Thursday in Davos, where he’s attending the annual meetings of the World Economic Forum.
Germany’s outlook is muted. The economy contracted last year, and while revisions of quarterly data means it avoided the textbook definition of a recession, some analysts say that a weak start to 2024 keeps that option in play. The country continues to suffer from high energy prices, elevated inflation and weaker exports due to lower demand from China.
Lindner said that a recession must be avoided, which will force the country to “change some policies.”
“Our next project has to be to strengthen the framework conditions for our economy by supply side measures, which means more flexibility for the labor market, public sector investments and cutting red tape for our economy and then those perspectives will improve,” he said.
Europe’s biggest economy was hit particularly hard by Russia’s attack on Ukraine, as it relied on Russia for more than half of its natural gas. Replacing that cheap energy source has been costly for the country.
In addition, the government under Chancellor Olaf Scholz had a self-inflicted budget crisis at the end of last year after unconstitutionally shifting funds outside of the regular budget. After weeks of negotiations, tough austerity measures were agreed, which in turn led to demonstrations on the streets by farmers protesting against the loss of subsidies.
Asked whether suspending the rules that limit German net borrowing, Lindner stuck to his stance as a fiscal hawk, saying “there will be no exception from the constitutional debt brake for this year.”
--With assistance from Bastian Benrath.
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