The Greek fiscal problems have morphed into a larger structural issue for Europe. Germany itself has come under criticism by some euro-zone members, including France, over its export reliance, its sluggish domestic economy and its stingy wage policy. Germany is responding to these criticisms. First, it notes that it has provided 90 billion euros of fiscal stimulus over the past two years. The European Commission has fixed budget deficit targets and has called on Germany to reduce its deficit. In fact, the EU has faulted Berlin for its lack of interest in additional austerity measures. Second, it explains that wages in Germany are not set by the government but are a function of negotiations between industry associations and trade unions. Some German officials have argued that export sector wages -- especially in the auto sector and mechanical engineers -- are relatively high by international standards. Third, it argues that many of the goods it exports are simply made elsewhere. Yet Germany's commitment to fiscal austerity is readily apparent. For example, it unilaterally adopted a deficit: GDP ratio of 0.35% in 2016 and earlier this month announced a six billion euro cut in this year's budget. Today the International Monetary Fund cut Germany's growth forecast for this year and next to 1.2% and 1.7% respectively. At the start of the year, the IMF forecast was 1.5% and 1.9%. Part of this is simply due to the recognition of Germany's near stagnation in the fourth quarter of 2009. The IMF identified downside risks to its forecast for a moderate paced recovery, including a sluggish banking system (with the Landesbanks needing restructuring) and the risks of weak international trade. The IMF said that Germany should boost domestic consumer spending, which would help insulate it from external shocks and the vagaries of currency movement. While this sounds like a bone to some of Germany's critics, the IMF, which some wag suggested stands for Its Mostly Fiscal, also said that Germany should not ignore its goal of fiscal consolidation and that any tax cut in 2011 should be paid for by spending cuts.
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