Scholz warns additional debts will burden German economy

By Al Mayadeen English
Source: Agencies
17 Sep 2023 14:40

The Chancellor voiced his disapproval of an article in a British magazine that labeled Germany as "the sick man of Europe."

German Chancellor Olaf Scholz, photographed in Warsaw, Poland, Dec. 12, 2021 (AP)

Germany's Chancellor Olaf Scholz has emphasized that the challenges confronting the country's economy cannot be resolved by merely increasing borrowing.

In an interview featured in a German newspaper, namely Welt am Sonntag, Scholz acknowledged that Germany is experiencing sluggish economic growth, attributing this primarily to the decline in specific foreign markets, notably China, which has a substantial impact on Germany, known for its export-oriented economy.

Furthermore, the chancellor pointed out that the escalating energy costs and persistent high inflation are unfavorable factors for the German economy. Additionally, the lingering effects of supply chain disruptions stemming from the COVID-19 pandemic continue to negatively affect the economy.

Scholz also voiced his disapproval of an article in a British magazine that labeled Germany as "the sick man of Europe" and criticized the country's strong emphasis on fiscal responsibility.

The chancellor rejected the critique presented in the mentioned publication, emphasizing that the advice given to Berlin essentially suggests taking on additional loans of up to €200 billion annually.

According to Scholz, such a proposal would not be acceptable for Germany, as he firmly asserted that incurring new debts would only lead to the emergence of new problems rather than resolving existing ones.

The German economy suffered a significant setback when Berlin aligned itself with the anti-Russian sanctions initiated by the United States last year in response to the intensifying situation in Ukraine.

Rather than achieving its goal of crippling Russia's economy, this sanctions effort had unintended consequences, causing more harm to the nations that imposed the sanctions than to Moscow.

Sanctions that were supposed to be a deadly blow to Russia's economy have turned into a nightmare for Germany, Europe's largest economy.

Prior to the start of the Ukrainian conflict, Russian oil had enabled the German economy to boom, fostering job creation, and growth in various sectors, and contributing to trade surpluses that further stimulated the business cycles.

When sanctions on Russia were enforced and Nord Stream was blown up, Germany's manufacturing PMI, which measures the performance of the manufacturing sector, fell to its lowest levels recorded since 2020, with an index of 40.6 in June 2023 dropping from 44.5 in April.

On September 11, the European Commission warned that Germany's economy will contract this year as part of a larger eurozone recession caused by greater prices and the depressing effect of rising interest rates.

The Commission's initial quarterly analysis indicates that Europe's powerful economy would be the worst-affected large country in the 20-nation single currency bloc, contracting by 0.4% in 2023.

The commission predicted Germany would grow by 0.2% this year three months ago, but now it says the world's fourth largest economy has been hit much harder than expected by decreased consumer spending.