In an interview with The Wall Street Journal, Bundesbank President Jens Weidmann claims that German deficit spending is more likely to benefit China than Greece. Growth in Greece and its subsequent financing during the fiscal adjustment period is a central political issue, as Greece uses projected growth as a negotiating tool with its international creditors.
In his interview with The Wall Street Journal, Weidermann explains the political reasoning behind such a decision, discussing the implications of German deficit spending.
The talk is about German deficit spending and public investment measures and how its spillover would influence the economies of countries under fiscal programmes. Here’s an excerpt from the interview:
Should Germany spend more on public investment?
I think there is an agreement that public investment should be strengthened, but there is probably disagreement about the size of the gap. It is important to judge investment on a case-by-case basis, as we have seen in the past that not all public investment measures have been money well spent. Moreover, we should focus more on shifting priorities than on deficit-financed public investment.
But you have the fiscal maneuvering room, you have a balanced budget – why not spend more?
From a German perspective, the cyclical situation and outlook do not require fiscal stimulus. In addition, Germany’s debt level is high and the country is facing a huge demographic burden that will weigh on growth and public finances. In that light, maintaining a balanced budget makes perfect sense. From a European perspective, deficit spending in Germany would probably not deliver the intended benefits because of limited spill-overs. China would be more likely to benefit than Greece.
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