German 'wise men' say investment not unduly weak

12th November 2014, Comments 0 comments

Germany's so-called "Five Wise Men", a panel of independent economic advisors, said Wednesday that the German economy -- Europe's biggest -- is not suffering from an undue weakness in investment.

And the panel, which actually comprises four men and one woman, warned that the European Central Bank's artillery of anti-deflation measures could harbour dangers.

"The cloudier outlook for the German economy has led to lively debate about a perceived weakness in investment," the experts wrote in their new annual report.

Faced with slowing growth in Germany, traditionally Europe's economic powerhouse, some of its neighbours and a range of international think-tanks have suggested that Berlin should open its purse strings and ramp up investment to kick-start recovery.

In response, finance minister Wolfgang Schaeuble recently pledged to funnel 10 billion euros ($13 billion) of public money into infrastructure, research and education by 2018.

"There are indeed some indications of weakness in public investment," the sages wrote in their report.

However, they urged the German government not to abandon its target of a balanced budget next year, arguing that its fiscal credibility is at stake.

The government "should not use the room it has within the framework of the debt ceiling because the credibility of its fiscal rules is not yet secured," the report said.

The favourable budget situation was partly due to unusual circumstances, such as low interest rates and high employment.

Instead of expanding investment, Berlin should "re-prioritise" its budget, they argued.

At the same time, there was "no evidence of a pathological weakness in private investment," the report added.

"Instead, the government should improve the conditions for private investment and innovation.

"The panel also downgraded its growth forecasts for this year and next year, saying it now expected growth of 1.

2 percent in 2014 and 1.

0 percent in 2015.

"Geopolitical risks and the unfavourable development in the euro area both played their part here," the report said.

Nevertheless, some of the government's own economic policies, such as the pension reforms, also contributed negatively to the outlook, the experts argued.

The panel also hit out at the ECB's ultra-expansive monetary policy, including a contested programme of asset purchases.

The moves "harbour dangers for the euro area economy in the long term," the experts said, arguing it would take the pressure off member states to pursue economic reforms and get their public finances in order.

Such criticism of the ECB is nothing new in Germany, with even the German central bank or Bundesbank warning of the potential dangers of monetary policies that are too accommodative.

© 2014 AFP

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