Wednesday 24 January 2018

German finance minister's plan is 'very dangerous' – economists

Philip Pilkington

Irish economists have branded German finance minister Wolfgang Schauble’s continued austerity plans for Europe as "very dangerous."

Mr Schauble said that short-term pain will be the trade-off for long-term gain and austerity is the only way to fix the eurozone crisis.

"Highly indebted western democracies need to cut expenditures, increase revenues and remove structural hindrances in their economies, however politically painful," he said in the Financial Times today.

"Governments in and beyond the eurozone need not just commit to fiscal consolidation and improved competitiveness -- they need to start delivering on them."

But economists believe that a focus on austerity is not the way forward and will lead to significantly worse economic conditions in Europe.

"I think Mr. Schauble's prescription for the eurozone is a very dangerous one," said Mr. O' Leary, chief economist at Goodbody Stockbrokers.

"Most people would accept that austerity for countries like Ireland and Greece is necessary but given the deteriorating economic environment fiscal consolidation in countries like France and Germany it could exacerbate the European-wide downturn."

Other Irish economists highlight the German finance minister's comments on “structural reforms” adding that Ireland has already introduced painful austerity measures as part of the €67.5bn loan from the EU/IMF/ECB.

"Mr. Schauble recognises that structural reforms have to go hand-in-hand with austerity measures," said Fergal O' Brien, senior economist at IBEC.

"Ireland will be in a good position to grow market share and increase exports because we have already become more competitive since the recession."

Mr Schauble also pointed out that excessive state spending has led to unsustainable levels of debt and deficits that threaten economic welfare.

At home, despite our reforms, Ireland’s exchequer deficit still stands at €20bn while the aim is to get the general government deficit down to 8.6pc of Gross Domestic Product (output) next year.

Meanwhile, World Bank president Robert Zoellick pointed to increased risks in the entire global economy and said that Europe's leadership needed to make the right decisions.

“We are moving into a dangerous period,” Zoellick said in an interview with Bloomberg today.

"While the US is likely to avoid a return to recession, escaping with slow growth, the eurozone is facing a particularly sensitive time."

Zoellick's comments are sure to increase pressure on European leaders who have recently found themselves faced with a sovereign debt crisis in Italy, whose government bonds have been falling for 11 days in a row. Meanwhile Finland, whose government has been showing increasing discontent with the European bailouts in recent months, has ratcheted up pressure on Greece by seeking collateral for their borrowing.

Promoted Links

Promoted Links

Business Newsletter

Read the leading stories from the world of Business.

Also in Business