Schlesinger calls for austerity: Spending cuts 'are now unavoidable'

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The Independent Online
THE BUNDESBANK yesterday stepped up pressure on the Bonn government to curb the ballooning public deficit as Helmut Schlesinger, the central bank president, made it clear that further interest rate cuts will have to wait.

Spending cuts were now unavoidable if Germany was not to endanger confidence in its state finances, he said.

Highlighting much stronger- than-expected monetary growth and the inflationary dangers this posed, Mr Schlesinger said: 'Anyone who calls for a strong easing of monetary policy now for economic reasons is putting at risk the confidence that our economy still enjoys.'

The Bundesbank president also sent out an unprecedented signal for other European countries to take over the interest rate leadership from Germany in an effort to pre-empt pressure growing on the mark. Those currencies internationally recognised as stable could 'to a certain extent, dictate their own interest rate levels', Mr Schlesinger said.

'Talk of the deepest-ever German recession can still come true if we carry on making big mistakes,' he warned.

Although the Bundesbank is openly concerned about the expansion in M3 money supply, economists believe this is being used as a vehicle for attacking the main worry - the public deficit. It is exerting behind-the- scenes pressure in an attempt to force fiscal austerity on the government.

'Theo Waigel, the Finance Minister, has to complete his 1994 budget by mid-July,' said Gerhard Grebe, chief economist with Bank Julius Bar in Frankfurt. 'The Bundesbank wants to see concrete spending cuts, which means no interest rates easing before then.'

Western German industrial output rose a seasonally adjusted 0.5 per cent in April from March, but fell 7.7 per cent from a year earlier.