Could, but almost certainly will not. Even if German lawmakers had not made a balanced budget a constitutional obligation two years ago, there is a deep consensus among policy makers and economists that austerity and growth are not enemies. They are comrades.
Jens Weidmann, president of the Bundesbank, the German central bank, was channeling generations of hawkish predecessors last week when he called on the government of Chancellor Angela Merkel to speed up efforts to cut new borrowing close to zero.
“We must quickly achieve a structurally balanced budget,” Mr. Weidmann said in an interview with the Tagesspiegel newspaper. Germany should set an example for the rest of the beleaguered euro zone, he said.
The Bundesbank president speaks for a large swath of the German public, and his comments suggest that President Nicolas Sarkozy of France and Prime Minister Mario Monti of Italy should not expect more of a financial commitment when they meet with Mrs. Merkel in Berlin this week. Mr. Sarkozy’s visit is Monday and Mr. Monti’s is Wednesday.
“One of the lessons of the crisis,” Mr. Weidmann said, is that cutting budget deficits “should be postponed as little as possible.”
That view annoys many people outside Germany, who see it as another example of the country’s lecturing the rest of Europe while putting a priority on its domestic interests. Germany, with the lowest borrowing costs and strongest economy among the big European countries, should lend the rest of Europe a hand, they say.
“Germany is the only country that has this freedom, and if they don’t use this freedom, that is bad,” said Éric Chaney, chief economist at AXA Group, a French insurer.
With interest rates on German bonds close to zero, Mr. Chaney noted, should the country not be using this cheap money to invest in education and infrastructure and to promote long-term growth while stimulating demand around Europe?
And Germany should do so for its own good, he added. “If Germany has a problem, it is the instability of the euro,” Mr. Chaney said.
Evidence of a coming downturn in the euro zone remains strong, despite some economic indicators in recent weeks that have been better than expected. Retail sales in the euro area fell nearly 1 percent in November from October, according to data released Friday, while unemployment remained at 10.3 percent. The European Commission’s confidence indicator fell in December for a 10th month in a row.
Despite the worsening circumstances — which most economists schooled in the thinking of John Maynard Keynes see as a compelling reason to loosen monetary reins and increase government borrowing — German fiscal policy is already effectively set in stone. In 2009, the country adopted a constitutional “debt brake” that requires a nearly balanced national budget by 2016.
Berlin can achieve that requirement only if it starts reducing deficit spending now. Mr. Weidmann called for the government to achieve that goal sooner.
There are sightings of Keynesians from time to time at German universities and research institutes, but they are a rare breed. Mr. Weidmann represents the prevailing school of thought, as does Jörg Asmussen, a former high-ranking official in the German Finance Ministry who joined the executive board of the European Central Bank last week.
Both studied at the University of Bonn under Axel A. Weber, a hawk’s hawk who was Mr. Weidmann’s predecessor as president of the Bundesbank.
Mr. Weber, in turn, followed in the footsteps of guardians of fiscal and monetary probity like Otmar Issing, a former official at the Bundesbank and E.C.B. who remains a towering figure in German economics. On Friday, the Frankfurter Allgemeine newspaper devoted a full broadsheet page to an essay by Mr. Issing calling for rigid fiscal discipline to restore confidence in the euro.
Article source: http://feeds.nytimes.com/click.phdo?i=eac87ad55d19f68a5a5f1fd0b96e72f6
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