The euro region’s troubled southern members should look to Finland, Canada and the Baltic states for evidence that debt cutting can promote economic growth, according to a German government policy paper.
Expansion in these countries was bolstered by “structural reforms” along with strengthening public finances, which create confidence and foster credibility among consumers and investors, said the paper prepared for coalition lawmakers.
Sustainable growth “can neither be bought by public- spending programs, nor by government intervention that distorts competition, or expansive monetary policy,” according to the eight-page report completed by Chancellor Angela Merkel’s office along with the economy and finance ministries.
The paper reflects Merkel’s position in negotiations with the opposition parties in the lower house of parliament, whose support Merkel needs to pass a law on the fiscal pact for more budgetary discipline in Europe and the permanent euro region backstop, the European Stability Mechanism.
The government and the two biggest opposition parties have set up working groups to reconcile differing views on the best way to foster European growth. Merkel and opposition leaders are scheduled to meet June 13, four days before parliamentary elections in France and Greece, to agree on a position.
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