Dombrovskis suggests Germany rev up spending to combat recession forces

Germany, the powerhouse of eurozone economy has been slowing down due to looming recession fears. Amid the dark times, Valdis Dombrovskis, a vice-president of the European Commission, suggested the country to rev up it’s spending by easing its rules, in order to combat the recession forces.

Before stepping into a meeting with the 19 finance ministers of the bloc in Heineken in Finland, Dombrovskis told CNBC, “Germany currently is one of the countries where this (economic) slowdown is most pronounced. From that point of view, we think that indeed now it’s (a) very appropriate moment for Germany to look at possibilities to have this fiscal stimulus.”

Dombrovskis added that European Union needs to follow a ‘balanced approach’. He said, “We need to take into account questions of fiscal sustainability, particularly in high debt countries, but we also need those countries that have the fiscal space to use it to stimulate the economy, especially to stimulate investment.”

Last week, European Central Bank (ECB) President, Mario Draghi also subtly hinted that nations like Germany and Netherlands should take charge of their fiscal policy, as the nations hold huge budget surplus. The are many who second Draghi’s suggestion for Germany to invest its surplus to prevent the economy from slowing down. This move would eventually help the eurozone from recovering from the current economic downturn, as Germany is the biggest economy of the zone. 

Draghi’s latest package of monetary easing, introduced on Thursday, was seen as his parting gift to the Europe zone. The key measures that formed a part of his plan were – bringing interest rates down to -0.5%, parking headline borrowing at zero rate, relaunching of quantitative easing programme with €20bn of bond purchases each month, and slashing of growth and inflation forecasts.

In addition to the fiscal stimulus, some of the finance ministers of the EU have been advocating for change in fiscal rules. Vilius Šapoka, the Lithuanian finance minister,  said that simpler rules were a better way to go about. Šapoka added, “The enforcement factor is an essential one, because if we do not obey the law, if we do not respect the rules, then the credibility of the whole system is very weak.”

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