In World Economy News 18/11/2016
Loosening euro zone budget rules and spending more to boost growth and jobs would put the bloc’s recovery at risk, Sweden’s finance minister said.
On Wednesday, the European Commission effectively urged Berlin to spend more, moving further away from its mantra of austerity.
Magdalena Andersson, finance minister of Sweden, which is not in the euro zone, said growth in the 19-country bloc was beginning to pick up after years of stagnation, made worse by high levels of government debt and large budget deficits.
“Now we are moving toward better growth in Europe. To start being careless again, I think, is completely the wrong way to go,” she told Reuters.
“I think it would put at risk the growth we have got.”
Germany, the economy with the most room for extra spending, has rejected the Commission’s call.
Sweden’s finances are in rude shape with the government estimating a deficit of 0.2 percent of GDP this year and a surplus in 2019. Government debt is around 40 percent of GDP, well below the EU’s ceiling of 60 percent.
But Andersson ruled out opening the spending taps to take advantage of record-low borrowing costs to meet structural challenges such as integrating record numbers of asylum seekers and turning around a fall in school results.
“Given the uncertainty we have today with Brexit and Trump, I think it is very pleasant to have such low government debt,” she said. “We know it will be a bit of a bumpy ride ahead, so we have a safety margin.”
Britain is Sweden’s fourth biggest trading partner and Andersson said that the Nordic country wanted to have “as soft a Brexit as possible”.
“From our point of view, the softer Brexit is, the better. But at the same time there cannot be any ‘cherry picking’,” she said.
With negotiations yet to start Andersson said it was tough to say what Britain’s eventual exit from the European Union would look like. It is still unknown whether Britain will be able to maintain anything like the free trading position it currently enjoys with the bloc.
“A soft or hard Brexit sounds very black or white,” she said. “But there is a big grey area in between and it is clear that’s where we will end up.”
Source: Reuters (Reporting by Simon Johnson and Johan Sennero; Editing by Robin Pomeroy)
