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| Germany’s Insistence on Austerity Meets With Revolt in the Eurozone | Germany’s Insistence on Austerity Meets With Revolt in the Eurozone |
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| BERLIN — As Europe confronts new signs of economic trouble, national leaders, policy makers and economists are starting to challenge as never before the guiding principle of the Continent’s response to six years of crisis: Germany’s insistence on budget austerity as a precondition to healthy growth. | BERLIN — As Europe confronts new signs of economic trouble, national leaders, policy makers and economists are starting to challenge as never before the guiding principle of the Continent’s response to six years of crisis: Germany’s insistence on budget austerity as a precondition to healthy growth. |
| France this week stepped up what has become an open revolt by some of the eurozone’s bigger economies against Chancellor Angela Merkel’s continued demands for deficit reduction in the face of slowing growth. Italy has warned against too rigidly following Germany’s preferred approach. Even the president of the European Central Bank, Mario Draghi, is pushing for Germany to loosen up. | France this week stepped up what has become an open revolt by some of the eurozone’s bigger economies against Chancellor Angela Merkel’s continued demands for deficit reduction in the face of slowing growth. Italy has warned against too rigidly following Germany’s preferred approach. Even the president of the European Central Bank, Mario Draghi, is pushing for Germany to loosen up. |
| The disagreement looms over European Union leaders as they meet at least three times this month, starting on Wednesday in Milan with discussion of high unemployment, particularly among the young, and the question of how to get Europe’s economies moving again. | The disagreement looms over European Union leaders as they meet at least three times this month, starting on Wednesday in Milan with discussion of high unemployment, particularly among the young, and the question of how to get Europe’s economies moving again. |
| The rapidly evolving debate holds the potential to be a turning point after a long period in which Germany and Ms. Merkel have dominated European economic policy. On Tuesday, new signs emerged that Germany, the traditional growth engine of the eurozone, was on the verge of an economic downturn. | The rapidly evolving debate holds the potential to be a turning point after a long period in which Germany and Ms. Merkel have dominated European economic policy. On Tuesday, new signs emerged that Germany, the traditional growth engine of the eurozone, was on the verge of an economic downturn. |
| “After going along with the damaging strategy of austerity in the hopes that Germany would eventually moderate its position, countries are now saying, ‘Enough is enough. We’re going to have to act to arrest the downward spiral in the economy,’ ” said Simon Tilford, the deputy director of the Center for European Reform in London. | “After going along with the damaging strategy of austerity in the hopes that Germany would eventually moderate its position, countries are now saying, ‘Enough is enough. We’re going to have to act to arrest the downward spiral in the economy,’ ” said Simon Tilford, the deputy director of the Center for European Reform in London. |
| In another warning sign, the International Monetary Fund on Tuesday cut its forecast for growth in the 18-nation eurozone this year yet again, to just 0.8 percent from a 1.1 percent outlook six months ago, and cautioned that the region might slide back into its third recession in five years. The fund urged Germany in particular to ramp up spending to stimulate the economy. | In another warning sign, the International Monetary Fund on Tuesday cut its forecast for growth in the 18-nation eurozone this year yet again, to just 0.8 percent from a 1.1 percent outlook six months ago, and cautioned that the region might slide back into its third recession in five years. The fund urged Germany in particular to ramp up spending to stimulate the economy. |
| Eurozone countries are “stuck” in low growth, Christine Lagarde, the managing director of the I.M.F., said in an interview. “That is clearly weighing on their perspectives going forward.” | |
| While still a firmly popular leader in her ninth year in power, Ms. Merkel is also under fire at home. In a new book, “The Germany Illusion,” one of the country’s leading economists, Marcel Fratzscher, takes the government to task for declining to invest in infrastructure and failing to encourage private investment or foster a modern service sector that would yield better pay and thus fuel higher consumer spending. He also criticizes large German companies for directing ever more of their investment to Eastern Europe, Asia and the United States, rather than to the eurozone. | |
| There are no signs so far that Ms. Merkel or German companies are likely to yield. The steps being sought by France and other advocates of change remain relatively modest — in essence, just slowing the pace at which they cut their budget deficits. | |
| A number of European nations, like Finland, are strong backers of austerity. And for all their summit meetings, European leaders have no big new plans for restoring growth, like the stimulus legislation passed in the United States in 2009 that is credited with helping to keep the recession from being deeper and longer. | A number of European nations, like Finland, are strong backers of austerity. And for all their summit meetings, European leaders have no big new plans for restoring growth, like the stimulus legislation passed in the United States in 2009 that is credited with helping to keep the recession from being deeper and longer. |
| Still, the combination of political pressure from both the left and right across Europe, and signs of continued economic erosion, have created a climate in which other countries feel emboldened to challenge Ms. Merkel — starting with France, long Germany’s closest partner in European affairs and a linchpin of the single currency. | Still, the combination of political pressure from both the left and right across Europe, and signs of continued economic erosion, have created a climate in which other countries feel emboldened to challenge Ms. Merkel — starting with France, long Germany’s closest partner in European affairs and a linchpin of the single currency. |
| Critics of austerity say that more government spending would increase demand for goods and services in Europe and help avert a dangerous fall into deflation, a downward spiral in wages and prices that can cripple an economy for years. Proponents of austerity say that governments that fail to get their budget deficits and accumulated debt under control risk losing the ability to borrow at affordable rates in the bond markets and sowing the seeds of financial instability. | Critics of austerity say that more government spending would increase demand for goods and services in Europe and help avert a dangerous fall into deflation, a downward spiral in wages and prices that can cripple an economy for years. Proponents of austerity say that governments that fail to get their budget deficits and accumulated debt under control risk losing the ability to borrow at affordable rates in the bond markets and sowing the seeds of financial instability. |
| Prime Minister Manuel Valls of France has intensified a showdown with Germany and Brussels in recent days, unveiling a “no-austerity budget” designed to cut the deficit more slowly than austerity advocates would like. During a trip to London on Monday to visit with Prime Minister David Cameron, Mr. Valls reiterated France’s defiance, saying the government would mend its finances “at our speed while not losing sight of our priorities.” | Prime Minister Manuel Valls of France has intensified a showdown with Germany and Brussels in recent days, unveiling a “no-austerity budget” designed to cut the deficit more slowly than austerity advocates would like. During a trip to London on Monday to visit with Prime Minister David Cameron, Mr. Valls reiterated France’s defiance, saying the government would mend its finances “at our speed while not losing sight of our priorities.” |
| As Italy, the eurozone’s third-largest economy, has stumbled back into recession, Prime Minister Matteo Renzi has admonished Berlin not to threaten its partners and turned up warnings that Germany’s austerity prescription might threaten political instability by stoking the appeal of populist and far-right politicians should economies worsen. | As Italy, the eurozone’s third-largest economy, has stumbled back into recession, Prime Minister Matteo Renzi has admonished Berlin not to threaten its partners and turned up warnings that Germany’s austerity prescription might threaten political instability by stoking the appeal of populist and far-right politicians should economies worsen. |
| At least for the moment, Berlin appears unwilling to deviate from its plan. In the German view, Wednesday’s meeting is about unemployment, and any discussion of budget deficits can wait as scheduled for late October, when a new European Commission — the E.U.’s administration — is supposed to be in place. | |
| “I do not need to underline that we have a big interest in growth,” said a senior German government official, speaking on condition of anonymity. But “we have common rules which we all agreed” on regarding budget deficits and when to discuss them, the official said. | |
| Ms. Merkel and her finance minister, Wolfgang Schäuble, are far more likely to stick to balancing Germany’s federal budget, “a very strange objective to announce in current circumstances,” Mr. Fratzscher, who is president of the German Institute of the Economy in Berlin, said in an interview. | Ms. Merkel and her finance minister, Wolfgang Schäuble, are far more likely to stick to balancing Germany’s federal budget, “a very strange objective to announce in current circumstances,” Mr. Fratzscher, who is president of the German Institute of the Economy in Berlin, said in an interview. |
| While they may agree to increase spending on roads, bridges and other infrastructure in Germany, he added, the German leaders are not likely to back similar policies for France and Italy, which in Berlin’s view cannot afford it. | While they may agree to increase spending on roads, bridges and other infrastructure in Germany, he added, the German leaders are not likely to back similar policies for France and Italy, which in Berlin’s view cannot afford it. |
| Outside Germany, however, alarm bells are ringing. Bernadette Ségol, leader of the European Confederation of Trade Unions, said Tuesday that the emphasis on budget rules was hindering attempts to pull out of problems that first appeared with the global financial crisis of 2007-8. | Outside Germany, however, alarm bells are ringing. Bernadette Ségol, leader of the European Confederation of Trade Unions, said Tuesday that the emphasis on budget rules was hindering attempts to pull out of problems that first appeared with the global financial crisis of 2007-8. |
| “Europe’s disastrous response to the crisis — austerity — has led Europe to a social crisis and to within sight of a political crisis,” she said, according to Agence France-Presse. “Europe does not need more austerity; it needs new policies.” | “Europe’s disastrous response to the crisis — austerity — has led Europe to a social crisis and to within sight of a political crisis,” she said, according to Agence France-Presse. “Europe does not need more austerity; it needs new policies.” |
| Mr. Fratzscher’s book quotes on its cover Sigmar Gabriel, Germany’s economics minister, leader of the left-leaning Social Democrats and Ms. Merkel’s partner in the “grand coalition” government formed just 10 months ago. Mr. Gabriel says Mr. Fratzscher “makes clear the problems we must tackle,” adding that “I read it to great advantage.” | Mr. Fratzscher’s book quotes on its cover Sigmar Gabriel, Germany’s economics minister, leader of the left-leaning Social Democrats and Ms. Merkel’s partner in the “grand coalition” government formed just 10 months ago. Mr. Gabriel says Mr. Fratzscher “makes clear the problems we must tackle,” adding that “I read it to great advantage.” |
| Unfortunately for Mr. Gabriel, to judge by last year’s national elections and votes last month in three of Germany’s 16 states, the Social Democrats cannot muster even 25 percent of the popular support. | Unfortunately for Mr. Gabriel, to judge by last year’s national elections and votes last month in three of Germany’s 16 states, the Social Democrats cannot muster even 25 percent of the popular support. |
| Any push to back their center-left political allies in France’s Socialist government, or Mr. Renzi’s in Italy, is therefore sharply limited, since German voters seem to share Ms. Merkel’s view that if Germany could trim its welfare state and still grow, others should be able to do the same. And Germany is not alone in its fight: The Dutch, Austrians and Scandinavians and the three Baltic states usually line up behind Ms. Merkel in any wrangling over fiscal policy. | Any push to back their center-left political allies in France’s Socialist government, or Mr. Renzi’s in Italy, is therefore sharply limited, since German voters seem to share Ms. Merkel’s view that if Germany could trim its welfare state and still grow, others should be able to do the same. And Germany is not alone in its fight: The Dutch, Austrians and Scandinavians and the three Baltic states usually line up behind Ms. Merkel in any wrangling over fiscal policy. |