Germany economic expert warns against further EU savings measures

20 July 2012 19:19  [Source: ICIS news]

LONDON (ICIS)--A leading German economist on Friday warned the EU against taking further savings and budget consolidation measures until the eurozone economy is growing again.

“We must not have any additional savings programmes until the economy has stabilised and we are seeing positive growth rates,” said Peter Bofinger, a professor at the University of Wurzburg and member of Germany's government advisory council of economic experts.

The absence of new savings programmes would delay the reduction of eurozone budget deficits, but that had to be accepted in the current situation, Bofinger said in an interview with German daily Passauer Neue Presse. The paper provided a transcript.

“If we are taking a bit longer in consolidating budgets in the eurozone, the region’s overall deficit could rise to an average 4% of GDP [from currently 3.0%], but that is still acceptable,” Bofinger said.

Higher budget deficits were a much better option than killing off the economy through savings programmes, he said.

Also, on average the overall eurozone government debt situation was still better than in the US, Great Britain or Japan, he said.

So far, many EU politicians do not seem to have realised that excessive savings and budget consolidation would weaken the economy to such an extent that government finances would worsen, rather than improve, he said.

“If we don’t stop this downward spiral, then EU aid for governments and banks won’t do much good,” he added.

Paul Hodges studies key influences shaping the chemical industry in his Chemicals and the Economy

By: Stefan Baumgarten
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