German finance minister defends cuts
Gavin Hewitt | 09:28 UK time, Thursday, 9 September 2010
>BERLIN In the great argument over whether spending cuts might choke Europe's recovery, German Finance Minister Wolfgang Schaeuble says that reducing budget deficits is the foundation for sustainable growth.
Speaking to the BBC, he said David Cameron's approach to cutting the UK deficit was on the right track. And he dismissed criticism that Germany was not doing enough to increase demand at home, saying German imports were at their highest level for decades. Here is the transcript of my interview with him, conducted in English:
Q: Is the German economy a "small miracle" or is the outlook still uncertain?
A: It is not a miracle, but it is better than expected. But you have to remember in 2009 the economy shrank by 4.7%. On this point it [the economy] is not as strong as some people think. The second quarter at 2.2% [growth] is a lot, nevertheless we are still below the level from before the crisis.
And of course our economy is well-structured, a good mixture between big, small and medium enterprises. This is very important for Germany and of course our way of deficit-reducing is growth-friendly. For Germany our way of very careful, limited, balanced deficit reduction is one way for sustainable development, therefore we are on the right way.
Q: The recent rebound in the German economy - will it last, because some of the recent data suggests it is already weakening?
A: I don't expect growth of more than 2% in the coming year. The German economic recovery will last, but not with the figures of the second quarter in 2010. It's a little bit of a special situation, but in the long term I expect growth between 1.5% and maximum 2%. Next year we will be close to under 2%.
Q: With the German economy doing quite well, why is there still a need for an austerity programme here?
A: It is not an austerity programme.
Q: Well, it is spending cuts, 80 billion euros of spending cuts.
A: Yes, of course 80 billion in four years... it's not as dramatic as it may seem. Our programme fits in with the EU Stability and Growth Pact [to bring deficits down to 3%]. It's what we call a growth-friendly deficit reduction and that is a [foundation stone] for sustainable growth.
Q: But is part of the reason why you are doing it, to set an example to other EU countries?
A: No, we are not the teacher for Europe. My principle is that every country has to do its duty... We have to defend the stability of the euro and we have to be in line with the European Stability and Growth Pact. And we are doing it. Not more, not less. And if we do so, we can ask our friends and partners to do the same, not more, not less. We are not the teacher of Europe.
Q: You say you are not the teacher of Europe, but Germany is sending out a message that other countries should not live beyond their means.
A: Germany sends out the message that in principle a balanced deficit reduction is not against sustainable economic growth. That is our message.
It means what all Europeans had in mind when we where all together in Toronto at the G20 summit... to say that deficit reduction or exit strategy as it was mentioned in the G20 policy since two years, is the right way.
Of course, you have to make it the right way to fit it into the special situation in any economy, but in principle it's necessary and it's a precondition for sustainable growth. I think the decision of the US is a little critical, but it is not up to me to decide it. For Germany our way is the right one and we won't destroy growth. It's the opposite. Our policy is very good and one precondition for a good economic development.
Q: And what do you say to those who argue that by adopting spending cuts and with other European countries cutting their budget deficit at the same time that it risks choking off growth, just at a time when so many economies are vulnerable?
A: No, the German example is proof it isn't necessarily so. In Germany our policy of a sustainable fiscal framework is a good precondition to increasing internal demand. Internal demand, consumption and investment are all increasing. We have had the highest figures of imports in Germany in the history of the Federal Republic of Germany, therefore what we are doing is not against growth, not in Europe, not in our global responsibility, but it's in favour of growth, sustainable growth.
Q: In your view you don't strangle, cut growth?
A: In principle no. Of course, it is important to find the right way. If you have such a crisis like Greece you have no alternative to make serious cuts, which hit for a limited time economic growth, but there is no alternative, this is what you can see in Greece.
If you have a situation like in the UK, I think the British government is on the right way. I have full respect for what Cameron, my friend, is doing. We in Germany can prove it is not in principle contradictory.
Q: And how sustainable is growth in Germany if other countries within the eurozone and the EU begin reducing demand with budget cuts all at the same time?
A: As long as all do it in the balanced way I don't have any concern about this. The opposite, the major threat, would be if they wouldn't do it... No, I think if we all fulfil what we all have promised...we will not harm economic and sustainable economic development, but the opposite. We will build one unavoidable precondition for our sustainable economic growth.
Q: You talk about the need for greater competitiveness, but in order for countries like Ireland and Spain to become competitive they have to reduce wages for years... they will have to endure severe deflation in order to become competitive with a country like Germany.
A: Maybe Greece will have problems. I hope Ireland not, but of course I would make a clear distinction between stability and between deflation. If you have too high a deficit you have to reduce it and maybe sometimes it is unavoidable to take for some limited time some economic disadvantages.
The best way to avoid this and to defend stability [is to reduce the deficit] as soon as possible, but even Germany failed and therefore we have to reduce. It's not too dramatic, we can do it without damaging our economic development, growth, but we must remain careful. One of the main reasons of the crisis... was the public deficit all over the world, in Europe and also in Germany.
Q: Has the crisis in the eurozone passed, or do you think there are still risks?
A: There are still risks, but I think we are on a good way to manage the risk.
(BBC News)
