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Germany under fire for laggardly reform

Oct 14 2014 05:00
Leopold Scholtz
The Hague - Germany has come under heavy fire after statistics showed last week that the country’s economic recovery is faltering.

The influential chairperson of the Eurogroup, Jeroen Dijsselbloem, criticised the German government for not following through on the reforms it began a decade ago. Dijsselbloem is also the Dutch minister of finance, but he spoke in his capacity as chairperson of the Eurogroup.

Dijsselbloem referred to the so-called Hartz reforms of 2004, when the centre-left coalition of chancellor Gerhard Schröder reformed the rigid socialist labour market, making it easier for employers to lay off workers. This also made it easier to employ people, and laid the foundation for a decade of healthy growth.

However, these reforms have not been followed up. The present Chancellor, Angela Merkel, is often reproached for sitting on her hands, economically speaking.

Dijsselbloem, who is a Social Democrat himself, told the Frankfurter Allgemeine Zeitung on the sidelines of the International Monetary Fund conference in Washington that structural reforms “are not something you do every ten or 20 years. Germany should be vigilant to remain competitive. You cannot look at the reforms from years ago satisfied with yourself. One has to look forward.”

Dijsselbloem’s warning also came on the eve of Monday's Eurogroup summit in Luxembourg, where he and his German counterpart, Wolfgang Schäuble, were to look each other in the eye.

Dijsselbloem praised smaller countries like the Baltic states, Spain, Portugal and Ireland, all of which have executed drastic reforms during the last few years, and all of which have returned to growth. However, some bigger countries have not carried out reforms.

“Conspicuous examples are France and Italy, but Germany also should think about how to keep its competitiveness,” he said.

At the same time Larry Summers, a former American minister of finance, told the German financial daily Handelsblatt that Germany needed to stimulate its economy, if needs be with borrowed money. “The interest rate of about 2% for Spain shows that the capital markets have a great willingness to make more finance available for Europe.”

He added that the return would be bigger that the cost. “To the extent that the Europeans conducted such investments, they improved their economic position. Debt is not always bad.”

 - Fin24

germany  |  eurozone  |  europe economy
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