W. German Minister says fiscal changes unlikely

Press, 25 February 1988, Page 25

W. German Minister says fiscal changes unlikely

NZPA-Reuter Bonn The West German Finance Minister, Mr Gerhard Stoltenberg, was quoted on Tuesday as saying the Government had no room for fresh fiscal measures despite further U.S. calls for West Germany to stimulate its sluggish export-led economy.

President Reagan last week urged the West German Chancellor, Mr Helmut Kohl, to take more steps to enliven Europe’s biggest economy. Mr Stoltenberg told the “Sueddeutsche Zeitung” newspaper that the government had already opted for an expansionary policy by allowing the

federal deficit to rise sharply this year.

“At the same time it is clear that on the financial policy side there is no room for short-term, additional measures to stimulate the economy,” he said in an interview with the Munich-based liberal daily. West Germany expects the federal deficit to increase to about 40 billion marks ($27 billion) this year, some 10 billion marks ($6 billion) above original forecasts. In addition, the country’s central bank, the Bundesbank, cut its discount rate to a record low of 2.5 per cent after the stock market crash. The

discount rate is the cheapest rate at which the Bundesbank lends to commercial banks.

Mr Stoltenberg said he saw no sign of a recession looming over West Germany, where private consumption and real incomes were continuing to rise.

He said the world economy was likely to continue growing and there was a good chance that the dollar would stabilise at around 1.70 marks for some time.

A sharp fall in the dollar’s value and a stock market crash last October sparked off fears that a recession would follow but economists say the danger

now seems to be receding. West Germany expects its economy to grow between 1.5 and 2 per cent this year after rising 1.7 per cent in 1987, but some economic research institutes forecast stagnation at one per cent or less.

Mr Stoltenberg said the Government had to concentrate on promoting growth through measures that did not involve fiscal policy, such as faster progress in deregulation and more flexibility in the labour market.

West Germany, whose economy is based on strong exports, is facing increasing competition from countries where labour costs are lower