More German Government Spending Could Overheat Economy

German central-bank President Jens Weidmann pushed back against international demands that Berlin loosen its purse strings to help reduce the nation’s large current-account surplus, arguing that higher government spending would risk overheating the nation’s economy.

Germany has come under fire in recent years for its current-account surpluses, currently worth around 8% of economic output, which reflect an imbalance between national savings and investment.

Speaking at a gathering of Group of 30 finance officials in Washington, Mr. Weidmann argued that the surpluses don’t reflect protectionist measures or “beggar-thy-neighbor” economic policies, but rather are appropriate for an aging country that needs to save for the future.

“No major industrial country will grow as slowly over the next decades,” Mr. Weidmann said, arguing that German savings would help support the economy. He said the surpluses also reflected low oil prices and a weak euro, which is a result of the easy-money policies of the European Central Bank.

Top German officials have long opposed the ECB’s more aggressive stimulus policies, which they worry hurt German savers and pensioners.

The International Monetary Fund, which hosted an annual gathering of international financial policy makers in Washington this week, has urged Germany to boost government spending, a move that would reduce its current-account surplus.

But Mr. Weidmann rejected that option, calling instead for Berlin to foster a better climate for investment in education and digital technologies.

“The German economy certainly doesn’t need any fiscal stimulus at the current juncture,” Mr. Weidmann said. “On the contrary, it would risk overheating the economy.”
Source: Dow Jones