Germany Takes on G-20 Growth Challenges With Dive Into Detailby and
Finance minister Schaeuble presents priorities in Washington
Germany to focus on tax evasion, digital economy, Africa
Germany may be warming up for its upcoming presidency of the Group of 20 nations by focusing on the details of the global economy, rather than seeing the big picture.
Set to take over from China’s leadership of the club of the world’s largest economies on Dec. 1, Europe’s economic powerhouse is facing stagnating global trade, political opposition to free markets and the secession of the U.K. from the European Union all on its watch. The nation is also the focus of pressure from those that argue surplus countries like Germany should spend more and save less in order to boost global demand.
German Finance Minister Wolfgang Schaeuble unveiled a few of his government’s priorities on Friday, ranging from continuing the fight against tax evasion to a focus on investment in Africa and boosting cyber-security. He spoke in Washington at the International Monetary Fund meetings during a joint press conference with Chinese counterpart Lou Jiwei, who warned the uncertainties facing the world economy have increased.
“The first point of emphasis for our work we’re going to call ‘strengthening resilience’,” Schaeuble said. “We want to elaborate principles for how the global economy as a whole, but also individual countries, can be strengthened in their resilience. The second focus is that we want to take a closer look at digitization in the context of the financial sector.”
Schaeuble spoke about how Germany will use its custodianship of the G-20’s financial regulation agenda, and how it will push forward the agenda on taxation in the digital economy and using public-private partnerships to boost investment in Africa. On the latter, he said he would develop a “Compact for Africa” during the presidency that aims to promote “more stability in the globalized world.”
Schaeuble skirted the growing discussion within the G-20 nations about the shift from relying heavily on monetary policy to using fiscal policy more extensively to boost growth. Germany’s consistent message in the G-20 has been that there isn’t any magic remedy to boost flagging global output -- it’s the hard road of structural reforms and investment.
The IMF said this week that global growth will slow to 3.1 percent this year from 3.2 percent in 2015, before rising again to 3.4 percent in 2017. That’s a level close to some definitions of a global recession. The fund also warned about the record level of indebtedness, with gross debt in the non-financial sector having reached $152 trillion last year, a level that limits scope to use deficit spending to bolster their economies.
“No one wants to talk about just boosting fiscal expenditure, they want instead to talk about smart fiscal ventures and this means boosting investment,” said Domenico Lombardi, director of the global economy program at the Centre for International Governance Innovation in Waterloo, Canada. “The G-20 have captured the problems facing the global economy but they’re falling short on action. Germany should use its political clout to galvanize action.”
Germany is having to take the global stage in a year when it may be preoccupied with events at home -- foremost being a general election expected in September 2017, posing a stiff test for the government of Chancellor Angela Merkel at a time when her immigration strategy is facing severe criticism.
The G-20 leaders summit is scheduled for July in Hamburg, earlier than normal to allow for the German vote. Finance ministers and central bank governors will meet in the southern spa resort of Baden Baden in March.
Schaeuble did use the opportunity to warn again about the dangers of loose monetary policy in itself, such as that currently run by the European Central Bank in Frankfurt, giving some credence to the argument that the tide has finally turned on the era of monetary activism almost a decade after the financial crisis.
“I also have the concern that with all the advantages of unusual monetary policy, the voices in the international organizations and the international community who are saying that the risks are even higher than the chances of this ultra-loose monetary policy are increasing,” Schaeuble said. “Two things together, a global overhang of private, public and company indebtedness together with ultra-loose policy maybe is one of the risks we will have to tackle even if we have drawn all the lessons from the financial crisis 10 years ago.”