Germany's Gabriel Pushes More Investments; Advises Tax Cuts Caution

By mdkg1116

Oct 08, 2016 06:00 AM EDT

In a news conference, upon presenting the government's updated growth forecast Sigmar Gabriel, the German Economy Minister said that the level of investment is always a yardstick for how firmly a country believes in its future and how it is willing to tackle it.  In addition the minister said that it is transparent that they need more investment in education and schools. Chancellor Angela Merkel, a classicist who opposed the promising tax cuts which takes ahead of next year's election, was warned by Sigmar Gabriel, made the case on Friday for more public investments in schools, digital infrastructure and road.

Gabriel, the head of German's Social Democrats and Merkel's junior coalition partner warned against the promising voters "gigantic tax cuts" and urged increased welfare handouts because currently Germany's solid public finances were mainly due to the low interest rates. Furthermore the economy minister stressed out that interest rated can rise again. The positive interest rate effect currently is 20 billion Euros per year for the German budget.

Whereas, Angela Merkel, the German Chancellor stated that German's economy at the moment is in good shape. Perhaps it is a surprise jump in industrial orders which ease concerns that Europe's biggest economy is on slower path. She emphasized that in August orders went up one percent buoyed by strong domestic and euro zone demand. A string of weaker numbers in observed in summer but it shifted. Jane Foley, Soundbite, Senior FX Strategist said that there are concerns over growth over the long-term. It requires more work to do when it comes to the German economic aspect, yet definitely we have seen some inspiring signs.

In her Berlin speech, the Chancellor it means a bit more flexibility. She said it is having a positive effect which will amount to six billion euros for 2017-2018. She further said that Brexit looms though and stressed out that negotiating Britain's exit to EU won't be easy. But the EU has to stick to stick to its principles.

 In Germany, we have seen local elections which suggest that Merkel's political power has lost its standing because perhaps of her position on supporting immigration to the extent she has. If Brexit remains a political and economic threat the Chancellor would face a major electoral challenge next year.

Mr. Gabriel said Brexit is bad but it won't hurt us as much economically as some fear it's more of a psychological problem and it's a huge problem politically. He said he will offer a pound to a euro that there will be a US-UK free trade agreement in place long before there is a US-EU agreement if happens.

He concluded that leaving the EU would not just help Britain but might revitalize free trade worldwide. 

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