France’s Finance Minister Bruno Le Maire called on “wealthier economies” in northern Europe to increase budget spending to revive Eurozone growth.
“There are many countries in the Eurozone that have the means to invest more,” Le Maire said in an interview in Paris.
The French plan to create a Eurozone budget, which could focus on countercyclical spending, has been met with fierce resistance in Germany and The Netherlands. France’s President Emmanuel Macron initially hoped for a regular budget, with its own direct tax resources, which would be politically held in check by a Eurozone parliament.
The countries that are net contributors to the EU budget, most prominently Germany and The Netherlands, are only willing to talk about “a fund” with no more than €17 billion, a sum whose systemic significance has been called into question.
Plans for the “budget” are supposed to be completed by June, although The Netherlands’ Finance Minister Wopke Hoekstra is demanding a national veto over spending decisions.
France is still hoping for an “accommodative” monetary policy by the ECB and the completion of the single market for capital and a regulatory banking union. Bruno Le Maire, France’s finance minister, is hoping to infuse the discussion with a new sense of urgency as the International Monetary Fund is warning of a global economic slowdown.
Calls for smaller periods of higher public spending are not unprecedented and have in the past proved effective.
In Portugal, Eurogroup President Mario Centeno oversaw an economic policy as Lisbon’s finance minister that is now seen as a viable alternative to recession-inducing internal devaluation. The government initially reversed public spending cuts and allowed the deficit to swell before Portugal returned to growth, which made it easier for the Portuguese government to meet budget targets.
Once in office in 2015, Centeno’s government increased public sector wages and pensions by 30% and reversed austerity measures while lifting the minimum wage by 20%. The deficit hit 4.4%, but since May 2016, Portugal never missed a budget target. In 2018, Portugal reached a 0.5% deficit – the smallest in 40 years.
The same precedent has been set by the Italian government, who argue that more aggressive fiscal consolidation measures help deepen the recession.