Euro-Area Cuts Alone Won’t End Crisis, Westerwelle Says
January 20, 2012, 2:40 PM ESTBy Brian Parkin
(Updates with Westerwelle comment from news conference in seventh paragraph. For more on Europe’s debt crisis, see EXT4 <GO>.)
Jan. 20 (Bloomberg) -- German Foreign Minister Guido Westerwelle said that European efforts to end the debt crisis won’t work if they rest only on budget cuts, dismissing as an “urban legend” talk of Germany’s drive to impose austerity.
As well as reining in debt, Europe needs to close a widening gap in competitiveness between the 17 euro-area states, including using European Union funds to finance economic growth, Westerwelle said in a speech today to the Brookings Institution in Washington, according to an e-mailed text of his remarks.
“By no means do I advocate austerity alone,” said Westerwelle, a former leader of Chancellor Angela Merkel’s Free Democratic Party coalition partner. “Budget cuts alone won’t do the trick.” It is false to say that Germany is obsessed with the “awkward hobbies” of fiscal responsibility, he said.
Westerwelle’s comments signal a recognition in Merkel’s government that more needs to be done to foster growth as the sovereign debt crisis that emerged in Greece in late 2009 threatens to plunge the entire euro region into recession. Merkel, as the leader of Europe’s biggest economy, has pressed for stiffer rules on deficit control in a “fiscal pact” to be at the heart of efforts to combat the crisis as it moves on to menace Italy, Spain and France.
‘Fix the Flaws’
“First we have to fix the flaws in the euro zone’s construction,” said Westerwelle. European leaders will also tackle structural reforms including efforts to ease labor-market rules that have dampened economic growth in the currency area, he said.
Earlier last decade, Germany was called the “sick man of Europe” before it embarked on easing labor rules, he said. “And we will do more: We will employ unused EU structural funds to stimulate economic growth.”
“Germany is committed to Europe and to the euro zone,” Westerwelle said later at a joint news conference with U.S. Secretary of State Hillary Clinton. “We will show solidarity on the one hand but on the other hand we also will ask for structural reforms because both is the answer to this present crisis.”
The Greek economy may contract by 3 percent this year, slightly less than the 3.2 percent contraction expected for Portugal, according to November forecasts of the Organization of Economic Cooperation and Development.
Spain Target
Spain may miss its deficit target of 4.4 percent of gross domestic product in 2012 amid signs that economic growth assumptions may fall short, the country’s Budget Minister Cristobal Montoro is cited as saying in an interview published in today’s Financial Times Deutschland.
--Editors: Alan Crawford, Kevin Costelloe
To contact the reporter on this story: Brian Parkin in Berlin at bparkin@bloomberg.net
To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net
