Germany’s top central banker has hit back at support for policies to boost demand in the eurozone’s largest economy.
Germany’s fiscal surplus, which is now at a post reunification high, has triggered promises from chancellor Angela Merkel’s ruling CDU party for tax cuts. The second largest party, the centre-left SPD, wants higher public spending. Both ideas have met with public approval in the country and would be welcomed by critics of the country’s yawning trade surplus.
But Jens Weidmann, president of the Bundesbank, said in Ljubljana on Wednesday that any embrace of debt-fuelled public spending would be “wrong”.
“With capacity utilisation currently running at above-average levels, a government expenditure programme would not only be pointless; it would also be of little benefit to other countries,” Mr Weidmann said.
“The ripple effects would be too small. And if monetary policy were to react with higher policy rates, the effect on the economies in other euro-area countries could possibly be negative.”
Mr Weidmann acknowledged, however, that public investment did need to increase to improve infrastructure and provide more education. It was also “indispensable” to have less red tape and other policies to encourage private investment.
Mr Weidmann last week called for the surplus to be used to pay off the national debt, bringing it more in line with EU rules which say it should be — at most — 60 per cent of GDP.