GERMANY INSISTED yesterday that European austerity efforts were not voted out on Sunday night with French president Nicolas Sarkozy.
After reviewing “au revoir austerity” reports in European newspapers yesterday, German chancellor Angela Merkel sent out her foot soldiers to deliver a reality check.
The debt reduction goals agreed in the fiscal treaty are not up for negotiation and, in Berlin’s eyes, are an important prerequisite to sustainable public finances.
“Growth-friendly policies and debt reduction are not extremes but two sides of the same coin – and you can’t have one without the other,” said German finance minister Wolfgang Schäuble.
Calls for a growth component to EU reforms gained traction during incoming French president François Hollande’s successful campaign.
But as early as last July Mr Hollande’s German allies, the opposition Social Democrats (SPD), presented their own “Marshall Plan” for growth. And while the SPD has criticised the fiscal pact for being austerity heavy, it does not see the solution in deficit-driven growth measures.
“More money alone is not enough,” said SPD Europe spokesman Michael Roth.
Widespread cultural antipathy in Germany to “buying” growth is shared across almost the entire political spectrum.
Like the SPD, the opposition Green Party supports the fiscal treaty and rejects deficit-fuelled stimulus. One of its demands on the growth front – providing targeted business funding via the European Investment Bank – has now been taken up by the German government.
“Merkel has a considerable ability to adapt and she will do the same with Hollande,” said Dr Gerhard Schick, the Green Party’s Bundestag finance spokesman.
“When Merkel makes her own a long-term demand of ours, we won’t object.”
Only one Bundestag grouping, the Left Party, shares calls around Europe to loosen the austerity corset.
“We don’t see how the Irish can vote on the fiscal treaty when the full package, including a growth component, is not yet on the table,” said Left Party finance spokesman Axel Troost.
“As it stands we see the treaty as a recipe for unemployment when what we need is state investment.”
As long as the Left Party is alone with its demand, Dr Merkel knows she has little to worry about politically on the home front.
In Europe, however, she faces an uphill battle to convince partners that, when she says “austerity”, she means sustainable public finances through balanced budgets.
Rather than flash the cash, Germany might contribute to European growth on another front.
On Monday, Mr Schäuble acknowledged that years of German wage restraint had throttled domestic demand and contributed to economic imbalances in Europe, long a complaint of Germany’s neighbours.
Government sources said yesterday there was “a bit of fire to the smoke”, but said Mr Schäuble’s remarks should not be over-interpreted. Too late: German opposition parties have praised Mr Schäuble’s remarks as an overdue but welcome policy shift.
“Finally Mr Schäuble has conceded that not just deficit countries but surplus countries like Germany have a responsibility too,” said Mr Roth of the SPD.
“To stabilise the currency union in the long term, all countries have to contribute by achieving even trade balances.”
