Germany will continue to push for fiscal consolidation and economic overhauls in the eurozone despite international pressure to back down, German Chancellor Angela Merkel said, pointing to former bailout-out country Ireland as proof that the efforts pay off.
The comments come as Greece is struggling reach a deal with its international creditors about additional economic overhauls in return for the remaining EUR7.2 billion ($7.69 billion) in aid from an existing bailout package that is due to expire June 30.
Some fear Greece is running out of cash and might have to leave the eurozone if it doesn’t secure bailout money soon.
“Europe is today in a better position than before [the financial crisis] but I firmly believe we aren’t yet out of the woods,” Ms. Merkel said at an economic forum organized by lawmakers of her conservative parties, without naming Greece. “The negative impact of very low interest rates and low oil prices is the risk that some might not push for reforms embraced by some countries.
“Ireland has become Europe’s growth engine. This shows what reforms in combination with solid finances can achieve,” she added. “Therefore, the German government will continue to advocate for this policy even though we are subject to considerable international pressure” to modify this course.
Germany has been criticized by the U.S. and some European countries such as France and Italy for focusing too strongly on its mantra of a balanced budget and reducing public debt to below 60% of gross domestic product instead of increasing investment activities.
German Economics Minister Sigmar Gabriel has put the country’s current investment gap at EUR118 billion.
Earlier Wednesday, a finance ministry spokesman said Germany doesn’t have high expectations for a breakthrough in negotiations scheduled for Friday between international creditors and Greece during a meeting of eurozone finance ministers in Riga, Latvia.
“We are heading to Riga with very manageable expectations,” said German Finance Minister Wolfgang Schäuble’s spokesman, Martin Jaeger. “We don’t expect a complete package and reform measures…can be adopted. This means that there will be some kind of interim balance been drawn up in Riga.”
Speaking at the economic forum, the president of the German Federation of Industry, Ulrich Grillo, called on the government to focus more strongly on a policy to generate growth by boosting investment, innovation and migration of qualified people.
“We are doing well, thanks to low raw material prices, low exchange rate and low interest rates,” Mr. Grillo said, adding this will lead to economic growth of around 2% this year.
But he warned that these are external factors that could change. More crucially, the government should opt to boost investment by more than the announced EUR15 billion over the next three years, he said.
“The agreed EUR15 billion are a good start but they are not enough,” he said.
Mr. Grillo warned that Germany can’t afford to wait if it wants to keep its competitive edge.