Merkel Presages G-8 Saying Europe Can’t Aid Growth With Stimulus

German Chancellor Angela Merkel rejected deficit spending as a way to spur growth in the euro area, sharpening her tone before meeting with fellow leaders from the Group of Eight nations next week.

“Some believe that growth is only possible via new state investment programs, even if it’s done by taking up debt,” Merkel said in a speech to the IHK German chamber of commerce group in Berlin today. “Over a span of 40 or 50 years in Germany, this theory didn’t turn out to be true. It didn’t work. And there is zero evidence that it will work in future.”

Four days before the G-8 summit in the U.K., Merkel stuck to her debt-reduction message amid soaring European youth unemployment and a euro-area recession that Germany has avoided. The outcry over “austerity” risks diverting Europe from what it must do to overcome the debt crisis, she said.

The concept of austerity entered the German lexicon only during the crisis and gave a sinister ring to what Europe needs: budget restraint and structural reforms to make economies more competitive and reduce joblessness, according to Merkel. The word austerity sounds “like a monster,” she said.

“Growth and consolidation are not contradictory,” the leader of Europe’s biggest economy said. “That’s why this is the only path to overcoming the sovereign-debt crisis in the euro region.”

Merkel, who is running for a third term in federal elections on Sept. 22, reiterated her government’s post-election goal of starting to pay down Germany’s debt. “That would be an extremely important signal,” she said.

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