IMF boss urges Germany to invest more domestically to secure long-term growth

IMF chief Christine Lagarde has joined calls on Germany to invest in future economic growth even at the cost of relaxing its cherished budgetary discipline, raising hackles in Europe's powerhouse.

IMF boss urges Germany to invest more domestically to secure long-term growth
Christine Lagarde. Photo: DPA

Berlin should spend budget surpluses “to invest more in public infrastructure, such as roads, railways and digital infrastructure,” Lagarde wrote in a blog published late Wednesday.

Lagarde's advice came ahead of a Thursday conference with top economists and policymakers from around Europe hosted in Frankfurt by the IMF and the Bundesbank, Germany's central bank.

Chancellor Angela Merkel's conservative-led governments have pursued the “black zero” policy, which calls for paying down old debts and avoiding creating new ones.

Proponents argue Germany must put its financial house in order to meet EU rules and brace itself for a looming demographic transition, which will see the economy transformed as millions born during the postwar baby boom head into retirement.

But increasing investments now could mean “higher growth in the long term will improve prosperity, helping to offset the costs of an ageing society,” Lagarde wrote.

“We have also advised the government to spend more on reforms that help women go back to work, such as opening more childcare centres and kindergartens,” as well as “creating training programmes for refugees”, she added.

Other suggestions the former French finance minister offered Germany included stoking wage growth to help boost inflation in the 19-nation euro area, and finding ways to reduce its massive trade surplus — the amount its

exports outweigh its imports by.

The IMF and Germany's allies and trading partners abroad, especially neighbour France, have repeatedly issued such calls in recent years.

Her advice met with a frosty reception from Bundesbank chief Jens Weidmann, who argued Germany should “maintain a safety margin to the existing fiscal rules (on debts and deficits) in the face of the looming democratic challenges” in a Thursday morning speech.

Investments and other measures to boost potential growth “require a shift in public expenditure from consumption to investment, rather than increased spending,” he insisted.

“This may not be the most attractive thing to do. But it would be the right thing to do,” Weidmann added.

Lagarde's own conference speech is slated for 1400 GMT Thursday.



Sweden boosts spending on civil defence in spring budget

Sweden is to channel a further 800 million kronor to local government and other organisations to bolster Sweden's civil defence capabilities, the country's finance minister has announced.

Sweden boosts spending on civil defence in spring budget

The new funding, which will go to municipalities, regional government, and other organisations, was announced of part of the country’s spring budget, announced on Tuesday. 

“This will strengthen our ability to resist in both war and peace,” Sweden’s finance minister, Mikael Damberg, said in a press conference. “If the worst happens, it’s important that there is physical protection for the population.” 

The government is channelling 91m kronor towards renovating Sweden’s 65,000 bomb shelters, and will also fund the repair the country’s network of emergency sirens, known as Hesa Fredrik, or Hoarse Fredrik, many of which are currently out of order. 

A bomb shelter in Stockholm. Sweden’s government is spending 800m kronor in its spring budget to boost civil defence. Photo: Anders Wiklund/ TT

Sweden’s Social Democrats are currently ruling on the alternative budget put together by the right-wing opposition, making this spring budget, which makes changes to the autumn budget, unusually important. 

The budget includes extra spending of some 31.4 billion kronor (€299m), with 500m kronor going to extra spending on healthcare,  and 10.3 billion kronor going towards supporting Ukrainian refugees, of which nine billion will come from the aid budget. 

The spring budget also includes the so called “pension guarantee bonus”, or garantitillägg, which will see four billion kronor (€390m) going to those with the lowest pensions. 

The bonus, which was the price the Left Party demanded for letting Magdalena Andersson take her place as prime minister, risks being voted down by the right-wing parties in the parliament.