Wednesday 7 December 2016

Concern in eurozone as Germany cuts its spending plans by €5.6bn

Published 06/03/2010 | 05:00

THE German parliament yesterday cut €5.6bn from the government's own spending plans, in a move which could increase tensions in the rest of the 16-nation eurozone about Germany's economic policies.

  • Go To

The surprise move by rank and file MPs to cut the planned record deficit of €85bn may partly be intended as a signal to Greece and other euro countries with budgetary problems.

It came as police fired tear gas at protesters who brought Athens to a standstill in the wake of plans for an extra €4.8bn of budget cuts there.

Tram, rail, subway and bus services shut in the capital and other cities. A walkout by air-traffic controllers forced the cancellation of all 58 flights to and from Athens International Airport yesterday afternoon and the re-scheduling of another 135, said a spokeswoman.

Finance Minister George Papaconstantinou implicitly criticised the EU as he argued for the budget cuts in parliament yesterday. He wants a clear pledge that the EU will act should Greece need help.

"Obviously, the EU must undertake responsibility, which it hasn't done yet," he said.

The euro could fall "massively" should lenders test the EU strategy by depriving Greece of the borrowings it needs, said analysts at London's BNP bank.

Bluff

"Europe is playing a type of poker game with a potentially big bluff. In the long term, market forces are directed by fundamentals, and while Greek consolidation efforts have been impressive, budget assumptions such as national growth projections are still standing on shaky grounds," they said.

German and UK investors bought more than a third of the €5bn bonds Greece sold on Thursday, according to HSBC, one of the managers of the transaction. Greek investors purchased 23pc.

The German budget cuts, which include spending on welfare and unemployment benefits, are likely to increase concerns about the imbalances within the euro area in both budget and trade deficits. Many economists argue that Germany will have to increase its own consumption for the euro area to return to stable growth.

"What is not yet appreciated is that the restructuring of peripheral Europe to some extent will require the restructuring of Germany," said Marc Chandler, Global Head of Currency Strategy at BBH bank in London.

"Fixing the periphery means that Germany's customer-financing, export-driven model, predicated on other countries consuming more than they produce may be challenged."

The model was on view yesterday, with government data showing German industrial orders surged 4.3pc in January. The economy ministry said the increase was powered by a 7.1pc increase in orders from within Germany, while orders from abroad were up by only 1.9pc.

Irish Independent

Read More

Promoted articles

Editor's Choice

Also in Irish News