Germany Has Fiscal Space to Support Economy, ECB’s Guindos Says
(Bloomberg) -- Germany can afford to spend more to support its struggling economy — giving it a clear edge over some of its peers, European Central Bank Vice President Luis de Guindos said.
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“Fiscal space is there,” Guindos told Bloomberg TV on Wednesday. “This is in stark contrast with other countries,” he said, calling that “an advantage for the future.”
He also argued that Germany won’t be the “sick man” of Europe if it tackles its structural problems and engage in reforms as it did at the start of the century.
The comments feed an increasingly heated debate about the need for more public spending in Europe’s largest economy to address cyclical and structural weaknesses. The discussions include overhauling strict debt limits enshrined in the constitution.
That’s likely to become a key topic as the country heads toward early elections in February following this month’s collapse of the ruling three-party government.
Guindos expressed hope that this will eliminate uncertainty and give rise to political stability, saying that “this is always good.”
“I hope that the new German government will be able to implement and to pursue the policies that are needed in order to improve the performance of the German economy,” he said.
Germany dodged a recession in the third quarter, expanding by 0.2%. But a second full year of contraction remains likely.
Guindos highlighted a debt-to-GDP ratio of close to 60% and a balanced budget, while other countries like France and Italy have higher debt and deficits.
He also noted that Germany has “a network of very good medium and small companies that are very competitive.”
If it addresses “the problems in terms of energy delivery and other kind of structural problems, Germany will not be – as some say – the sick man of the euro area,” he said. “I’m fully convinced about that.”
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