German spending would do little for global growth

A public stimulus programme in Germany would contribute little to lifting global growth, the Bundesbank said Monday, shrugging off calls from eurozone partners for Berlin to increase its spending. 

“It appears that a programme of public spending in Germany would not be the most appropriate tool to help give a strong stimulus to the international economy,” the central bank said following a study into the issue.

Increased public spending would boost German domestic demand, and thereby trade with “some small and medium-size economies in the surroundings of Germany and in central Europe”.

But the effect would be “weak” for the eurozone’s biggest economies like France, Italy and Spain, said the Bundesbank, adding that it would also have little impact on Portugal and Greece. 

The bank grounded its arguments in a study that simulated an increase in German public investments by up to 1.0 percent of gross domestic product over two years.

But the study concluded that “German economic policy cannot resolve the external economic inequality of another country”. 

The bank has always been sceptical about recurrent calls from the International Monetary Fund as well as European partners like France for Berlin to increase its public spending.

Such calls have grown louder in recent years as Europe’s biggest economy has seen healthy growth — with the Bundesbank expecting GDP to expand by 1.7 percent this year, while the eurozone is struggling with low inflation and tepid growth.

Berlin has also come in for criticism for profiting from European demand through its popular “Made in Germany” exports while doing little to contribute to lifting the single currency area’s growth.