German Finance Minister Peer Steinbruck has launched a highly unusual attack on Britain’s economic stimulus package, saying it will not fend off recession but will leave the next generation saddled with debt.
In an interview with Newsweek magazine, excerpts of which were published on Wednesday, Steinbruck said the British government’s switch from financial prudence to heavy borrowing was “breathtaking” and “crass Keynesianism.”
He accused British Prime Minister Gordon Brown’s administration of “tossing around billions” with its £20 billion (US$29.7 billion) stimulus plan to cut tax on goods and services, funded by borrowing more and increasing taxes after 2011.
It is highly unusual for a diplomat to be so publicly critical of an ally’s policies, and Steinbruck’s remarks will only add to simmering tensions between Britain and Germany on the eve of a EU summit.
“Our British friends are now cutting their value-added tax. We have no idea how much of that stores will pass on to customers. Are you really going to buy a DVD player because it now costs £39.10 instead of £39.90?” Steinbruck told the magazine.
“All this will do is raise Britain’s debt to a level that will take a whole generation to work off,” he said. “The same people who would never touch deficit spending are now tossing around billions. The switch from decades of supply-side politics all the way to a crass Keynesianism is breathtaking.”
“When I ask about the origins of the crisis, economists I respect tell me it is the credit-financed growth of recent years and decades. “Isn’t this the same mistake everyone is suddenly making again, under all the public pressure?” he said.
EU leaders were meeting yesterday and today to put the final touches on economic stimulus plans.