German Finance Chief Lectures US on Spending at Washington Event

Kamil Kowalcze, Bloomberg News

, Destatis

(Bloomberg) -- German Finance Minister Christian Lindner warned his coalition partners against emulating the US Inflation Reduction Act, saying that contrary to its name it has failed to constrain consumer prices in the world’s biggest economy.

Speaking at an event in Washington, Lindner referenced critics at home who have been pushing him to loosen controls on public spending to address are raft of problems from crumbling infrastructure to lackluster growth. And he also aimed a dig at President Joe Biden’s flagship economic policy.

“Why do you dream of an inflation reduction act in Germany when the Inflation Reduction Act of the US fails to reduce inflation,” Lindner said at a session on the sidelines of the International Monetary Fund meetings. “I don’t want to be impolite, but if we look at the economic development in the US, the inflation rate is higher again and this forces the Fed to react.”

The IRA, enacted in 2022, has contributed to a factory-building boom in the US, alongside companion legislation on infrastructure and semiconductors, in turn supporting sustained stronger-than-expected economic growth. The Biden administration has pointed to measures to reduce drug prices — included in the IRA — in arguing that it has helped fight inflation.

German inflation has slowed from a peak of more than 11% in late 2022 to just 2.3% in March. Still, economic output has been dire for more than a year and the IMF expects growth of just 0.2% in 2024 — worse than any of its Group of Seven peers. The US economy will grow 2.7% this year, the fund projects.

“We do not have a lack of public sector money, we have a lack of productivity, the framework conditions,” Lindner said. “The industry is not as good as it should be so we do not need more taxpayer’s money or higher public debt, we have to focus on the supply side – people should enjoy making business in Germany because they expect remarkable profits in Germany.”

He also said that he predicts a so-called soft landing for his country and that in addition to the likely boost from the European Central Bank’s expected monetary easing later this year, that result is thanks to Germany’s fiscal policies.

--With assistance from Christopher Anstey.