From the TUC

German finance minister and fiscal stimulus

11 Dec 2008, by Guest in Economics

Lots of Tory glee today about comments by Peer Steinbruck apparently criticising the Government’s fiscal stimulus.  It’s worth reading the whole interview by Steinbruck however before getting carried away. It’s clear he is not arguing against fiscal stimulus as such (the German’s have just agreed their own 32 billion euro package after all) but against attempts by politicians to outdo each other with the size of their stimulus (which all sounds faintly lewd).  He makes the point that there is no stimulus that can stop this recession altogether.

He is also clearly hacked off by the fact that Brown, who has spent the last decade lecturing the world on the benefits of anglo-saxon fiscal conservatism, has suddenly become equally evangelical about his born-again Keynesianism; but that is hardly a key issue given the current crisis.

Steinbruck did make a specific dig at the VAT cut but I think his comments on that look pretty ill-informed. I have expressed doubt before about the psychological impact of the VAT cut in terms of making consumers feel richer but it does have a number of pros: it can be done quickly, it can be reversed once the economy picks up and I think it will give a boost to spending over the next few months and maybe bring forward some transactions that may have been put off until later.  And looking at some of the very odd prices in the shops (£10.71 for a CD), Steinbruck is wrong about it not being passed on to customers.

One Response to German finance minister and fiscal stimulus

  1. Alex
    Dec 11th 2008, 6:05 pm

    The sight of a *German* finance minister complaining that someone had been lecturing about fiscal conservatism is pretty amusing too…