Germany needs to immediately increase public investment otherwise Europe has no future, France’s finance minister has urged.
Bruno Le Maire said the German government had the “fiscal space” to invest more and should do so “now” to improve its growth potential and to show “solidarity” with the rest of the eurozone.
Germany’s economy, the largest in the euro area, shrank by 0.1 per cent in the three months to June and is likely to fall into a technical recession later this year, according to the Bundesbank, Germany’s central bank. There is growing clamour in Germany and other EU nations, and at the European Central Bank for Berlin to turn on the spending taps to help prop up growth.
“Germany must invest more now to support growth in its economy and the eurozone as a whole,” Mr Le Maire said at the Ambrosetti Forum, an annual gathering of Italy’s business elite on the shores of Lake Como.
“A lack of investment means a lack of a future and of the ability to believe a new future is possible.”
The German government has so far refused to abandon its cherished zero deficit rule and is constrained in any case by a debt brake enshrined in the constitution that limits the federal government’s structural deficit, stripping out the effects of the economic cycle, to a mere 0.35 per cent of gross domestic product.
Mr Le Maire said German businesses recognised the need for more investment in the economy and he expressed confidence that Berlin, in concert with Paris and Rome, would eventually come round to the idea.
“I know Germany quite well. On the first move Germany always says ‘Nein’. Once Germany understands the importance for Germany and for Europe, Germany says ‘Ja’. And once Germany says ‘Ja’, it sticks to it, which is something quite rare in Europe.”
Mr Le Maire welcomed the new coalition government in Italy between the centre-left Democratic party and the anti-establishment Five Star as a new start for Italy in Europe after the repeated Eurosceptic attacks by the far-right League, which was ejected from power last week.
Relations between France and Italy hit rock bottom earlier this year after Luigi Di Maio, the Five Star, leader and then deputy prime minister, lent his support to the Gilets Jaunes anti-government protests in France.
France’s attempts to persuade Germany and other northern eurozone governments to embrace further integration of the single currency bloc were also undermined last year by the former Italian government’s clashes with the EU over budget limits. Paris is now counting on a more pro-European administration in Rome to help promote its arguments. It also wants Rome to back its push to change EU competition rules to allow for the emergence of European industrial champions.
Mr Le Maire said it was too early to determine whether the EU should apply more flexibility on Italy’s 2020 budget, an outline of which Rome must present next month. He noted that France had always supported eurozone countries that had “shown willingness to improve competitiveness and productivity”.