French Finance Minister Pierre Moscovici, sitting next to his German counterpart, said Germany should inflate its economy to spur euro-area growth.
Wolfgang Schaeuble, speaking today with Moscovici to university students in Strasbourg, France, didn’t directly respond, instead focusing his comments on the need for greater political union in Europe.
“Right now, all countries are consolidating, which means hitting the budgetary brakes, even in countries running surpluses,” Moscovici told students at government and management school ENA. “If we all hit the brakes together, we all get stuck together.”
The budget deficit in Germany, Europe’s biggest economy, will be near balance next year and the country runs a trade surplus. The French government has said it won’t hit its target of bringing its deficit down to 3 percent of gross domestic product this year because the cuts would push the country into recession; France ran a 67 billion-euro ($86 billion) trade deficit last year.
Schaeuble said that “in Germany we don’t call it austerity, we call it deficit reduction.”
Moscovici called for ending the “sterile” debate between austerity and growth.
“No one can deny that there’s a link between austerity and unemployment,” Moscovici said. “What this government asks for is a re-balancing of policies toward growth.”
The German minister said that countries had to restore financial order before closer political ties were possible. “I’d prefer a parallel process but we need time for constitutional changes that take much time, so we need to act first on the economic and financial crisis,” he said.
Monetary policy can only “buy time to act, but can’t solve the problems,” Schaeuble said.
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