Merkel Says Cutting Sovereign Debt Helps Growth
First Published Sunday, 22nd April 2012 11:15 pm - © 2012 Dow Jones
--Merkel: Reducing debt complements growth
--Chinese Premier Wen says path to global economic recovery still has obstacles
--Both leaders call for more to be done to promote growth
HANOVER, Germany -- Reducing the enormous debts of euro-zone nations helps economic growth and nations should focus on both, German Chancellor Angela Merkel said on Sunday, weighing in on an increasingly divisive debate over how to tackle the sovereign debt crisis.
"I don't understand why these pillars are played off each other so frequently. They complement each other," Merkel said in a speech during the opening ceremony for an industrial fair. Excessive debt makes euro-zone countries vulnerable to financial markets, and with high debt you cannot create economic growth, Merkel argued.
"One factor to generate growth is reducing debt," she added.
In recent weeks, leaders have fiercely debated whether strict austerity measures are wise as the euro-zone struggles with recession. Euro-zone nations such as Spain have implemented sweeping reforms to reduce their sovereign debts, in the wake of a years-long crisis that has resulted in increased borrowing costs and falling economic growth.
The debate has been a prominent feature of the French presidential elections, as the country went to the polls on Sunday. At a campaign rally earlier this month, French President Nicolas Sarkozy said it was essential that the European Central Bank take on new efforts to boost growth in the euro zone. The ECB has been one of the biggest promoters of strict austerity programs for countries such as Spain, Italy and Greece.
"If Europe doesn't want to lose ground in the global economy, it must revive growth," Mr. Sarkozy said. He is battling to gain support for re-election. Germany declined to comment on the French elections, a spokesman said.
Merkel joined Chinese Premier Wen Jiabao on Sunday in opening the annual Hannover Messe, a global industrial fair, where China is this year's partner country. Germany, the euro-zone's largest economy, became China's sixth-largest bilateral trading partner last year, according to figures from the U.S.-China Business Council.
Wen, who is in Germany as part of an official visit to four countries in Europe, warned that the international financial crisis hasn't ended and the road to global economic recovery remains full of potholes.
"The lack of new growth areas in the real economy has hindered recovery of the world economy," he said, adding that the virtual economy in some developed countries has grown excessively and become divorced from the real economy.
Countries should facilitate the growth of real economy, said Wen, adding that China should firmly carry out market-oriented reform and open its markets to the world.
In her speech on Sunday, Merkel said that China's economic growth has helped the euro zone. She called for labor markets in the euro zone to open up and for countries to focus on tackling youth unemployment. She added that the German government has no plans to increase inheritance or property taxes, calling such a move counterproductive.
Merkel and Wen had a private dinner Sunday and plan to jointly tour the industrial fair Monday. A spokeswoman for the German government declined to comment on the dinner.