The Weidmann cometh
German central bank chief signals hard line with EU partners
Jens Weidmann is Merkel’s closest economic adviser as well as Bundesbank president. He strongly advised the government against tax cuts (according to a major story in Der Spiegel, Germany’s leading news outlet, in the weekend print edition) — on two grounds:
- Germany’s productive capacity is now “more than overstretched” so the economy doesn’t require stimulus; and
- The fiscal position of the German government is not nearly as strong as it seems based on a temporary budget surplus (Weidmann is looking at multi-year pension and health obligations for an aging population).
In other words, Weidmann is making a case to INCREASE saving in Germany rather than attempt to stimulate consumption.
This is a take-no-prisoners position. It has been largely ignored in the foreign media despite its Macy’s-window prominence in German media. It’s also surprising: we expected the Germans to offer a deal to their EU partners in which Germany would increase imports (by increasing domestic consumption via a tax cut) to give them leeway for structural reforms.