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TEHRAN, May 29 -Germany’s new Social Democrat finance minister, Olaf Scholz, is frustrating both key ally France and his own struggling center-left party by adopting the same fiscal rigor as his conservative predecessor, Wolfgang Schaeuble.
TEHRAN, Young Journalists Club (YJC) - Germany’s new Social Democrat finance minister, Olaf Scholz, is frustrating both key ally France and his own struggling center-left party by adopting the same fiscal rigor as his conservative predecessor, Wolfgang Schaeuble.
During his first two months as treasury chief of Europe’s largest economy, Scholz has committed to a continued goal of no new debt and limited public spending.
It is a strategy the 59-year-old hopes will help revive his Social Democratic Party (SPD), which suffered its worst post-war result at last year’s elections, by proving he can manage the public finances of the world’s fourth largest economy.
But the strategy risks alienating his party’s core supporters at home, who would like to see more spending on education, infrastructure and social housing, and complicating the search for a Franco-German compromise on euro zone reforms.
Scholz’s strategy is already proving a source of frustration among some fellow euro zone members, who had hoped the inclusion of the center-left SPD in Germany’s governing coalition would steer the EU’s economic powerhouse to invest more domestically and boost growth in other countries through higher imports.
That includes Germany’s most important ally.
French President Emmanuel Macron earlier this month urged Germany to wean itself off the “fetish” of fiscal conservatism, warning that such policies were always made at the expense of other countries.
In a speech to German lawmakers days after Macron’s comments, Scholz hit back: “We act pragmatically and properly - and do not worship a fetish.”
Scholz, who publicly embraces comparisons to his conservative predecessor’s fiscal approach, is defending the idea of maintaining a balanced budget while dismissing the assertion that Germany is too strict on spending.
Asked why Scholz is ignoring Macron’s plea, a finance ministry spokesman pointed to constitutionally enshrined borrowing limits and the coalition deal to finance any additional spending without new debt.
“Thanks to the favorable, prolonged upswing, it’s also a quite academic debate because we can now massively hike public investments without taking on new debt,” the spokesman added.
HEALTHY GROWTH
The German economy grew by a calendar-adjusted 2.5 percent last year, the strongest rate since 2011, propelled by strong domestic and foreign demand. Despite slowing in the first quarter, it is expected to keep growing at a healthy pace.
Europe will also be watching to see if Scholz takes the same approach to the EU as his predecessor, who was reviled in countries such as Greece for imposing unpopular public spending cuts in return for bailout aid.
That includes his approach to Italy, which for many European leaders has become the euro zone’s greatest concern given its hefty public-sector debt and lavish spending plans by leading parties.
Further political instability looks inevitable after Italy’s president set the country on the path to fresh elections, likely to be fought over its role in the European Union and euro zone.
Source:Reuters
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