Germany Under New EU Pressure to Increase Spending

The European Union’s economic leaders called on Monday for eurozone countries with high growth to spend more, an attempt to persuade Germany to step up its public spending and strengthen the bloc’s economy.

Germany is expected to expand by 1.8% this year, according to upwardly revised estimates from the International Monetary Fund, while its trade surplus keeps increasing, Reuters reported.

The solid expansion of the German economy has not, however, been matched by a similar growth in public expenditure, as the country recorded a 0.8% fiscal surplus last year.

“It would help the economy of the eurozone as a whole if the countries that already have big growth would allow for an expansion of the demand side, in other words increase wages or lower taxes,” the head of the Eurogroup of eurozone finance ministers Jeroen Dijsselbloem told reporters before a regular meeting in Brussels.

The bloc’s finance ministers will discuss at their monthly meeting the fiscal stance of the eurozone for next year as part of talks aimed at influencing budgetary decisions of the 19 member states.

An attempt by the European Commission to aim for a slightly expansionary fiscal policy for the eurozone as a whole this year was met by German opposition and was eventually dropped.

Before talks on next year’s policy, Economics Commissioner Pierre Moscovici insisted that the rationale for a fiscal stimulus was still there, even if the eurozone is now growing healthily.

He said that to maintain growth the eurozone would still need to use all instruments at its disposal, including the fiscal policy.

He insisted that at a certain stage the bloc should have a positive, and not neutral, fiscal policy.

Meanwhile, German economy is indeed firing on all cylinders. An accommodative fiscal and monetary policy stance, the upturn in world trade and low energy prices have supported the economic upturn gain momentum at the beginning of the year.

Analysts expect these favorable conditions should remain in place in the coming quarters. After expanding at 0.6% in Q1, the economy is expected to maintain its robust growth rate in Q2, largely driven by domestic demand.

The main driver of GDP growth in the first quarter was net exports. Data released by the Federal Statistics Office on Monday showed that robust German exports pushed up trade surplus in May. Seasonally adjusted exports climbed 1.4%--their fifth consecutive monthly increase—while imports rose 1.2%, both figures beating expectations, the data from the Federal Statistics Office showed. The seasonally adjusted trade surplus edged up to €20.3 billion ($23.12 billion) from a revised €19.7 billion in April.