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After the terrorist strikes in America, Germany's Economics Minister says the EU must stay the course of fiscal prudence
The World Trade Center attacks have taken their toll on the European economy as well, prompting most economists to halve their expectations for 2002 growth from 2% or higher to closer to 1%. That has prompted speculation that, despite a sworn commitment to financial prudence, Europe's socialist-led governments might be tempted to reintroduce subsidies or other forms of economic stimulus.
The answer from Germany, at least, is a clear no. In a recent interview with Frankfurt Bureau Chief Jack Ewing, German Economics Minister Werner Mueller rejected such measures, including a speedier tax cut. Rather, he says, Germany will continue to work on achieving a balanced budget and creating conditions for more growth. Here are edited excerpts from their discussion:
Q: Have your expectations for economic growth changed as a result of the World Trade Center attack?
A: Conditions have remained fundamentally stable. We were positive about the beginning of 2002. After this crime in the U.S., I see a risk -- partly because of statements by the business associations themselves -- of too much pessimism. The data don't justify that. But as you know, economics is in large part psychology.
Q: Do you plan new policy initiatives, either for the economy as a whole or for specific industries?
A: As far as the terror attack is concerned, we are planning specific measures to ensure that airlines are insured and to combat terrorism. We're not planning an additional economic stimulus program. Rather, we're continuing to work to create the conditions for lasting growth.
Q: The opposition and some in business have proposed moving forward planned tax cuts. Would you consider that?
A: There would be only one way to do that -- to drastically increase new debt. That wouldn't comply with the Maastricht criteria [agreed to by countries adopting the euro]. It's simply not possible. The opposition is promoting the idea but they haven't presented any way to finance it. Our goal remains to achieve a balanced budget by 2006.
Q: Will European partners show as much self-discipline?
A: I'm convinced that the European partners will continue to stick to the Maastricht criteria.
Q: Will you consider subsidies, for example for the airline industry or insurance industry?
A: No, no subsidies. The insurance program was only a short-term measure to allow resumption of air traffic. The German airline industry isn't asking for any subsidies.
Q: Will you change your view toward economic reforms, such as more flexibility in the labor market?
A: We are planning the so-called "Job-Active Law." That increases flexibility somewhat. In addition we're discussing with business leaders the fact that the legal framework allows a lot more flexibility than they realize.... We also have, by tradition, a different understanding of the labor market. In the U.S., for example, thousands of airline employees are being laid off without notice. That's not the German tradition.
The fact is that in a lot of areas we have very good numbers. We had 15% export growth last year and will have 8% to 10% this year. The auto business continues to go very well, as does the machine-tool industry. Consumers are likely to have more net income at their disposal. There are many signs of hope.
Edited by Douglas Harbrecht
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Copyright 2001 , by The McGraw-Hill Companies Inc. All rights reserved.
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