German finance minister sees no room for euro zone fiscal stimulus

BERLIN (Reuters) - The German Finance Ministry on Thursday rejected a call by the European Union’s executive for governments in the 19-country euro zone to spur growth and jobs by loosening overall budget policy next year.

The European Central Bank (ECB) presents the new 50 euro note at the bank's headquarters in Frankfurt, Germany, July 5, 2016. REUTERS/Ralph Orlowski

The European Commission on Wednesday effectively urged Berlin to spend more, moving further away from its mantra of austerity.

“We take a critical view of the European Commission’s analysis on the aggregated so-called ‘fiscal stance’ of the euro zone,” a spokesman for the ministry said in a statement emailed to Reuters.

“In light of the still high debt levels in the EU, we see no possibility for an expansionary fiscal policy,” he said. “There is no fiscal room to maneuver in Germany in light of the medium-term challenges.”

He said there was also no need for such a step because of the continued economic recovery in the euro zone.

As anti-EU political groups tap into discontent across Europe after years of slow growth and high unemployment, EU leaders fear shocks such as June’s Brexit vote and Donald Trump’s election in the United States could stunt an embryonic recovery.

In its review, the Commission did not name Germany, where Chancellor Angela Merkel’s conservatives face an election next autumn complicated by the emergence of the fiscally hawkish, euroskeptic and anti-immigrant Alternative for Germany (AfD).

But since France, Italy and Spain are among those butting up against the currency union’s budget deficit limits, only Berlin, running a surplus, has the scope and economic weight to make a difference.

Merkel’s cabinet has agreed to stick to plans for a balanced budget over the next four years, holding course despite the shock of Britain’s vote to leave the EU.

Her government has increased spending to cope with the influx of some 900,000 migrants last year.

“I find it completely absurd if the Commission is embarking on a debt policy,” said Eckhardt Rehberg, a budget expert in Merkel’s conservatives. “The federal government will not give up its solid budget policy.”

Reporting by Matthias Sobolewski; Writing by Michael Nienaber; Editing by Paul Carrel and Robin Pomeroy