Weidmann Hits Back After Lagarde Criticizes German Surplus

Jens Weidmann hit back at criticism of Germany’s current account and budget surpluses by International Monetary Fund Managing Director Christine Lagarde, saying raising public spending purely to tackle the issue would “likely be a futile undertaking.”

The Bundesbank president kicked off a joint conference by the two institutions by saying that while Germany needs better spending, it doesn’t need more. Instead, it should seek a “shift in public expenditure from consumption to investment.”

Lagarde, who will also attend the event in Frankfurt on Thursday, had written a blog post only a few hours earlier urging Germany to raise spending to boost growth and prepare for the costs of a rapidly aging society.

Read more on Christine Lagarde’s blog post

“We at the IMF see a particularly strong case to use headroom in the budget -- including beyond the ‘black zero’, namely the balanced federal budget -- to invest more in public infrastructure such as roads, railways, and digital infrastructure,” she wrote. “We need to ask why German households and companies save so much and invest so little, and what policies can resolve this tension.”

While Weidmann agreed that pension reforms and “targeted investments in research, education and, especially, digital infrastructure” are necessary, he stressed that there is no need for an expansive fiscal policy stance.

Germany’s economy grew last year at the fastest pace since 2011 on the back of record-low unemployment, strong global trade and the European Central Bank’s expansionary monetary policy. The boom led to a surplus in the federal budget of 1.2 percent of gross domestic product, while the current-account excess over the 12 months through November totaled 262 billion euros ($320 billion).

— With assistance by Andrew Mayeda