Germany Rejects Obama's Call on Growth, Stoking G-20 Conflict

Chancellor Angela Merkel’s government rebuffed U.S. calls to focus on bolstering growth over debt reduction, setting a course for conflict at the Group of 20 summit in Canada this week.

“Nobody can seriously dispute that excessive public debts, not only in Europe, are one of the main causes of this crisis,” Finance Minister Wolfgang Schaeuble told reporters in Berlin today alongside Merkel. “That’s why they have to be reduced.”

Germany is holding to G-20 commitments on exit strategies from fiscal stimulus, and “not violating international requirements for a coordinated strategy for sustainable growth,” Schaeuble said. “We will face up to the international debate and I think we can do that with a great deal of self- confidence,” he said.

Five days before G-20 leaders meet in Toronto, the economic-policy divide between Europe and the U.S. is hardening. President Barack Obama, in a letter to his G-20 counterparts dated June 16, urged a focus on economic growth, saying order to public finances should be restored in the “medium term.”

German Economy Minister Rainer Bruederle, at a separate press conference earlier today, said the U.S. must join Europe in “urgently” cutting spending.

“It’s urgently necessary for monetary stability that public budgets return to balance,” Bruederle said. “This is something we should also tell our American friends.”

Canada’s ‘Minimum’

Canadian Prime Minister Stephen Harper, in his own letter to G-20 counterparts, said June 18 that he wants leaders to agree to a target of reducing their deficits by half by 2013, and to stabilize or begin reducing their ratios of debt-to- output by 2016.

The European Union is “somewhat wary” of these targets because Europe’s goals are more ambitious, according to a senior EU finance official, who said the proposals by Canada should be the “minimum.”

“A number of advanced countries will have to go further,” said the official, who spoke to reporters in Brussels today on the condition of anonymity. “For us, it has to be absolutely clear that this is a minimum.”

European G-20 members will make deficit reduction a central theme in Toronto, Merkel said June 19 in a video message on the Internet.

“We will talk about when we’ll switch from the phase of economic stimulus programs toward lasting budget consolidation,” Merkel said. “In the opinion of Europe’s participants, and especially Germany, this is urgently necessary.”

‘Unity of Purpose’

Whereas Obama called on the G-20 to reaffirm its “unity of purpose to provide the policy support necessary to keep economic growth strong,” Merkel said that “it’s not about growth at any price, it’s about sustainable” growth.

She said June 11 that she expects to have a “hard time” at the summit, with pressure from fellow leaders to spend to boost growth while she sees “no alternative” to budget savings.

Nobel prize-winning economist Paul Krugman said the U.S. isn’t worried about “loose monetary policy” and said it would be a risk for the euro region to allow Axel Weber, president of the Bundesbank, to succeed Jean-Claude Trichet as head of the European Central Bank, German newspaper Handelsblatt reported

“If you’re looking for somebody who aims at an inflation rate of zero percent while unemployment rises to 13 percent, then Weber is certainly the right man,” the newspaper quoted Krugman as saying.

To contact the reporter on this story: Rainer Buergin in Berlin at rbuergin1@bloomberg.net

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