Saturday 21 October 2017

Germany must ease up on austerity to revive euro zone - UK minister

It is unlikely that Berlin and Brussels will roll over to Mr Tsipras, effectively agreeing to a European-wide programme of debt forgiveness and to a reversal in the 'cruel' austerity policies of the past five years.
It is unlikely that Berlin and Brussels will roll over to Mr Tsipras, effectively agreeing to a European-wide programme of debt forgiveness and to a reversal in the 'cruel' austerity policies of the past five years.

Germany must relax its insistence on austerity and stoke domestic demand so struggling euro zone nations like Greece can grow their

way out of crisis, the man who could be Britain's finance minister after May elections said.

On Britain, the opposition Labour party's finance minister-in-waiting said Prime Minister David Cameron's planned referendum on European Union membership was the biggest risk in at least a generation to Britain's $2.8 trillion economy.

Ed Balls said that if it wins the May 7 election, a Labour government would avoid such "foolhardy" brinkmanship and strike a more constructive tone in Europe while defending British interests on immigration and tax.

Balls, the man who helped prevent Britain joining the euro under former Labour Prime Minister Tony Blair said the currency bloc had moved from crisis into a "chronic phase".

Germany had been right to push for clear rules on government spending and borrowing. "But the rules have got to be deliverable and fair to all and there are some challenges there," Balls told the Reuters euro zone summit in an interview.

"The country which has clearly got the capacity to contribute more to domestic demand is Germany and I think Germany has got to do its bit and play its part more than it's done in the past if we are going to succeed."

In a measured critique of Chancellor Angela Merkel's insistence on austerity in the euro zone and a strict focus on eliminating Germany's own deficit, Balls echoed the United States and some major investors in urging Berlin to do more.

He insisted Germany and Britain were natural allies in Europe but his comments suggest a Labour government would join a chorus of voices urging a change of course.

Greece has just elected Alexis Tsipras, who has promised to reverse budget cuts and renegotiate its huge debts, the centre-left governments of France and Italy favour measures to boost growth and a radical anti-austerity party leads opinion polls in Spain.

Neither Greece nor the euro zone will flourish if Europe's biggest economic power insisted on policies which have helped push the euro zone into deflation, Balls, 47, said.

"I don't think the northern economies can simply look at the south and say: 'It is up to you'."

"The focus on reform, fiscal reform, structural reform across the euro zone is important but it is very hard to do relative adjustment within the single currency area if you have a deflationary environment," Balls said.

Greater fiscal unity will be necessary for the euro to succeed, said Balls, echoing a recent call from Bank of England Governor Mark Carney who said the bloc should do more to pool spending and tax-raising resources. That kind of major change is opposed by Germany.

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Balls said Cameron's promise of an in-out referendum by 2017 on Britain's EU membership risked spooking allies and investors.

"It's the biggest risk facing the British economy, jobs, investment and our place in the world in the coming decades," said Balls, who served as chief adviser to former Labour finance minister Gordon Brown before becoming a cabinet minister himself.

Cameron, trying to head off a growing threat from the UK Independence Party, has promised to reach a new settlement before the referendum though EU peers have warned they will not countenance a cherry-picking of the rules.

Balls said top U.S. officials had expressed to him "very deep unease about Britain throwing our European Union membership up in the air".

"It's incredibly foolhardy," he said. "I don't want Britain's exit from the European Union to become a self-fulfilling prophecy and that's going to require more leadership than we have seen from David Cameron and [finance minister] George Osborne and it's going to take a change of government to deliver that leadership."

Miliband has said he will not offer voters a referendum unless more powers are to be transferred to Brussels, a stance opponents say is losing votes in Labour's traditional northern English heartlands.

Balls said a Labour government would make it harder for immigrants to claim welfare benefits, oppose attempts to take tax-setting powers away and defend London as a financial centre.

"We have to be willing to do business, we have to be willing to say: 'We want to be part of this' if we are going to get the kind of outcomes that are in Britain's national interest.

"In a negotiation, nobody minds you banging the table and saying: 'That's not going to work for us' if they believe you are serious. But if they think in your mind that you have sort of given up, in the end then they think: 'Is there any point making the effort for these guys?'"

Reuters

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