The summit in Japan of the seven major Western economic powers has actually delivered very interesting results. They are being ignored in the German media for the most part, simply because what is going on does not fit the ideological orientation of the mainstream press. The Frankfurter Allgemeine (FAZ) published ‘insider’ information before the top started (see here). This ‘insider’ is certainly a German official from the Department of Finance or from the Bundesbank. The big news was that Germany would object to any stimulus program. The Handelsblatt reported on the top with objectivity, but could in the end not bring itself to clearly explain what really went on (see here). In most of the media, the fact that someone threw a cake at Sahra Wagenknecht is a thousand times more important than the result of the negotiations in Japan. One needs to read the Financial Times in order to even get so much as a feel for what has been discussed (see for example here).

The Japanese host, Prime Minister Abe, tried to make the countries agree that a fiscal stimulation of the world economy is now inevitable. As the Financial Times reported, using the prime minister’s own graphs (see here), Abe compared the state of the world economy in 2008 with today’s situation in order to emphasise the urgent need to avert a renewed slump.

The final communiqué signed by all participants is at such conferences usually prepared in long, late, night meetings by the secretaries of states (see here for the full English text). The text is sufficiently clear. One just needs to take diplomatic habits and wordings into account to read between the lines in order understand what has been discussed. It is clear that fairly unequivocal requirements were formulated towards countries such as Germany to implement fiscal stimulus measures, but that they have been consistently denied by Germany (and, obviously, the UK). Every time that stimulating demand or fiscal policy is mentioned, the importance of structural reforms follows immediately thereafter.

The key section of the “Economic Initiative of Ise-Shima’’ sets the tone. The first section (which is always the most important one in such statements) states from the very start that:

“World Economy: Global economic growth is a top priority. Considering economic circumstances we are committed to strengthen our economic policies in a cooperative manner and to create a more effective and equitable mix of policy tools to quickly achieve a strong, sustainable and balanced growth structure. We reaffirm our determination, individually and collectively, to use all policy instruments – monetary, fiscal and structural policies – in order to strengthen global demand and to address supply shortages, while continuing our efforts to carry the debt on a sustainable path.

We reaffirm the important role of mutually reinforcing fiscal, monetary and structural policies – the three-pronged approach – to support our efforts to create a strong, sustainable and balanced growth. We agree, how important it is to step up our efforts to flexible implementation of our fiscal policies in a cooperative manner in order to promote growth, employment and confidence, while at the same time strengthen resilience and ensure that the debt to GDP ratio reaches a sustainable path, and continue structural reforms with determination. We are committed to advancing structural reforms to boost growth, productivity and production potential and lead the way in addressing structural policy challenges by example. We are committed to further investments in areas that are conductive to economic growth, such as environmental protection, energy, the digital economy, the development of human resources, education, science and technology.’’

It is noticeable that in the first paragraph everything is aimed to finally produce a difference and let loose of the status quo: cooperation should be strengthened, instruments should be used more effectively. The second paragraph makes clear that global demand has to increase and that efforts will be continued to lead debt levels onto a workable and sustainable path.

How is it possible to use all available macroeconomic instruments (monetary, fiscal and structural policies) to strengthen global demand and to remain on a viable path (mind you, a path viable in the eyes of the G7)? There is only one answer: countries such as Germany must pursue an expansionary fiscal policy. Yes, it is even justified to conclude that it is virtually exclusively Germany that is called to action.

Of course, the traditional means of monetary policy are basically exhausted and the ECB is not the bank of the countries of the G7. Structural policy is structural policy. It does, by definition, not influence aggregate demand. Therefore only fiscal policy remains. Which countries can implement fiscal policy? It is simple: the countries where the debt and the current deficits allow it.

Figure 1.

Figure 1 shows the budget deficits of the G7 countries (except Canada because AMECO has no comparable data for it for the last few years). It is very clear which country the G7 has in mind: the country that has no problem with its absolute level of debt and where public finances show surpluses in recent years: Germany! It cannot be anyone else (and especially not Italy or Japan) because anyone else has much more significant deficits and much higher debt levels. If we add to this that it is Germany that has, by far, the highest current account surpluses (which are, in turn, of course not independent of the government surplus), there is no question that the communiqué of the G7 countries kindly requests Germany to stimulate demand, which can only mean to again accept government deficits. The need for a “cooperative strategy” which is mentioned two times in the two first paragraphs alone is a clear indication of the context in which these numbers are being used and, especially, who is being called upon to change course (although there is no doubt that a direct reference to Germany was vetoed by the German delegation).

This means, of course, also that, internationally, Germany is completely isolated on this issue. This does not change because the German delegation, as already mentioned above, in composing the communiqué  insisted to add to virtually any sentence the ‘structural reforms’ that cannot be forgotten. The other countries conceded because it is indeed possible to make the point that, when demand increases, the productive infrastructure will be used more effectively. This in turn, presupposes the existence of certain ‘structures’ for further growth. True enough, but it is not the real issue.

After the general election of 2013, I immediately pointed out that Sigmar Gabriel committed a grave mistake by leaving the Federal Ministry of Finance in the hands of the CDU (see here). This mistake can no longer be corrected. Events such as the G7 top prove it. Even if the SPD would not follow an entirely different course within the ‘grand coalition,’ it could at least reduce German stubbornness in international negotiations and in doing so help itself the most. G7 and G20 negotiations are prepared by the Federal Ministry of Finance and the Minister can of course give its delegation the order to radically reject every proposal that the others put on the table. The delegation can fight for every word in the communiqué that is not considered acceptable. Another way is possible and much more appropriate. It is, for example, possible to relax and let things pass that the coalition partner will not like, but which have to be accepted because it is wise to do so under international pressure. If this would happen, a finance minister from the SPD, who wants to distinguish himself and her or his party, should demand more funding for public investment. She or he would have the best arguments in the world.