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8th May 2021

Worst of euro crisis over, says German minister

  • For the German economy, the situation is 'better than expected', says Schaeuble (Photo: World Economic Forum)

Confident that France will "fulfil its obligations" and with Greece off the hook for now, Germany's finance minister Wolfgang Schauble has cast a glimmer of hope for 2013.

"I believe the worst is behind us," Schaeuble told the daily newspaper Bild in an interview previewed on Thursday (27 December).

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Economic projections show most of the eurozone will linger in recession next year, but Germany is likely to keep growing. "The situation is better than expected, also because trade with the US and Asia is picking up," Schaeuble said.

His comments come at the end of three years of intense drama over the survival of the euro during which several red lines were crossed with Greece. It was the first country to receive a bailout and the first to have a partial debt restructuring within the eurozone.

"The government in Athens knows that it cannot financially overburden other eurozone countries. So they are pushing forward with the reforms," Schaeuble said.

Earlier this month, the International Monetary Fund pressured Germany into accepting that Greece will need a further debt cut at the expense of eurozone governments in the coming years, but Schaeuble has managed to postpone such decision until after general elections in Germany next fall.

France falls in line

In his Bild interview, Schaeuble stroke an optimistic tone about France, the second-largest economy in the eurozone where Socialist President Francois Hollande has challenged the German austerity drive and sought to bring the public finances in order by increasing taxes rather than cutting pensions and wages.

"I am certain that France will fulfil its obligations," the German minister said. "The government is very much aware of the fact that every country has to permanently pursue reforms to remain competitive."

The International Monetary Fund on Wednesday repeated concerns about France falling behind Spain and Italy, where market pressure has forced the governments to decrease labour costs and make deeper reforms.

With Spanish exports rebounding, "pressure on France" is further increasing, Edward Gardner, the IMF director in charge of France told journalists in a conference call.

But Gardner also said it would be wrong for Paris to pursue harsh austerity measures in 2013, when growth is expected to be very feeble, even if this meant to slightly miss the EU deficit target of 3 percent of GDP.

This is in line with the IMF's latest change of course about the negative effects of too much austerity in recession-plagued countries like Greece, Spain and Portugal.

"Whether the deficit is 3 or 3.5 percent next year matters less as long as France can give reasonable and credible assurances about the direction of policies," Gardner said, noting that the EU commission has also signalled openness on this front.

As for the tax-hike policy Hollande has pursued, the IMF said there should be no further tax increases but rather spending cuts once the economy is back on a solid growth rate.

"We think that France is hitting a limit where there is very little scope for raising taxes further without dampening initiative and economic activity," Gardner said.

The message seems to have arrived in Paris.

"Over the next five years, there will be more cuts in spending than increases in taxes and that will bring in €60 billion,"French finance minister Pierre Moscovici wrote in the German business daily Handelsblatt.

He also sought to reassure the German public that his government is serious about bringing down the deficit to 3 percent next year and reducing the country's debt.

"In the past 30 years, France has not been able to pass a balanced budget. State debt rose to an unacceptable €1.7 trillion in 2011. It is our duty to reverse this," Moscovici wrote.

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