Savings Salvoes

Merkel Defends Herself Against Criticism from Washington

AP

German Chancellor Angela Merkel: "I don't think we should relent" on savings.

Does Germany's savings plan threaten to disrupt the fragile economic recovery in Europe and elsewhere in the world? In an interview with a German public broadcaster on Thursday morning, German Chancellor Angela Merkel said she had rejected such criticism from US President Barack Obama.

Despite at times shrill criticism from abroad and pressure from the United States, German Chancellor Angela Merkel is standing firm behind her government's plans to approve a massive savings package in response to Germany and Europe's debt crisis. "We are going to implement the efforts we have agreed to," Merkel told German public broadcaster ARD on Thursday. "I do not think we should relent." The chancellor reminded viewers that Germany has borrowed more this year than ever before in its history in order to provide stimulus to the global economy and German consumption.

"Eighty billion euros in a total federal budget of €320 billion -- if we can save another €10 billion next year because of positive economic developments, then that can only be good for us," she said, since it would mean fewer interest payments for future generations.

Just a few days before her departure for the G-8 and G-20 summits in Canada, Merkel also countered criticism from US President Barack Obama, reiterating that Germany's austerity measures will not hinder growth. The "opposite" is true, she said. Obama recently called for greater stimulus spending in Europe to ensure that the fragile economic recovery isn't jeopardized.

Merkel said that this year alone, Germany will spend 2.1 percent of its gross domestic product on economic stimulus and that Germany is doing far more than a lot of other countries to promote growth in the global economy. The chancellor said she had made these points in a telephone conversation with Obama on Wednesday, and that she believed the president had listened to her arguments.

A Warning to Merkel?

In a recent open letter (PDF download) to the leaders of the G-20 states, Obama called on them to make economic growth their chief priority. "(I)t is critical that the timing and pace of consolidation in each economy suits the needs of the global economy," Obama wrote -- a demand that has been interpreted by many as a direct warning to Merkel.

Obama has also been highly critical of the German economy, where personal consumption is weak and reliance on exports is heavy. "I am concerned by weak private sector demand and continued heavy reliance on exports by some countries with already large external surpluses," the president wrote in his letter to G-20 leaders.

And on Wednesday, according to the Wall Street Journal, a senior Obama administration official reiterated, "It is important for European growth in particular, and the world more generally, that advanced surplus economies in Europe strengthen the constribution of internal demand to growth."

Merkel, however, sought to brush off the criticism in an interview with the newspaper. "German export successes reflect the high competitiveness and innovation strength of our companies," she said. "Artificially reducing Germany's competitiveness would be of no use to anyone."

dsl -- with wires