BERLIN—Germany’s finance minister insisted Tuesday that reducing deficits should not hurt economic growth, sticking by his strategy to tackle Europe’s crisis despite the new U.S. Treasury secretary’s call to boost demand more.
Germany, which has Europe’s biggest economy, has been a major force in making austerity-led deficit reduction the focus of the 17-nation euro area’s crisis response, while Washington has said it would like to see more growth-friendly policies.
Treasury Secretary Jacob Lew and Finance Minister Wolfgang Schaeuble were, however, keen to downplay differences as they met. Their talks were part of the U.S. official’s trip across the region that started Monday at the European Union’s Brussels headquarters and the European Central Bank in Frankfurt. He was due to visit France, the eurozone’s second-biggest economy, later Tuesday.
Lew said he “made clear our concern that global demand needs to grow, and policies within a country to grow demand are good domestically and it’s good for the world economy.”
“Policies that would help to encourage consumer demand in countries that have the capacity would be helpful,” he added.
Some economists argue that European countries with relatively low debt, like Germany, should increase government spending or cut taxes to boost consumer spending and economic output. That would help offset the economic decline in debt-laden countries, like Spain, which are pursuing tough austerity measures. Berlin has been reluctant to do so.
Lew told a joint news conference after meeting Schaeuble that he “would emphasize where we agree as a starting point” and added there is a shared commitment to growth and fiscal discipline.
He sidestepped a question about what else Germany could do to foster growth abroad, saying that every country has its own targets for potential growth — “but I think it’s fair to say that zero is not a good target for anyone and negative is very bad.”
Schaeuble renewed his long-standing insistence that the policies Berlin favors are no barrier to growth. Germany argues that getting public finances in order is key to generating long-term growth.
“I often have the impression that there is a misperception,” he said. “No one in Europe sees this contradiction between financial policy consolidation and growth … our conversation did not deal so much with differences that don’t exist as such.”
He also brushed aside a question about whether the U.S. should reduce its deficit faster, saying that “we trust in the American government” to know what’s best for the country. “We in Europe have enough work to do explaining why the situation in Europe is how it is, so we don’t need to give the United States advice.”
The two ministers also made clear that they have a shared interest in tackling tax evasion.