LONDON – Germany’s outgoing Finance Minister Wolfgang Schaeuble warned that spiralling levels of debt, as well as the growth of liquidity across the world, risk creating a new financial crisis.
Speaking to the Financial Times as he leaves his long-held post at Germany’s finance ministry and becomes the Speaker of the Bundestag, Schaeuble said that his view is shared by economists around the world.
“Economists all over the world are concerned about the increased risks arising from the accumulation of more and more liquidity and the growth of public and private debt. I myself am concerned about this, too,” Schaeuble said.
Schaeuble – who is renowned and often disliked across Europe for being hugely critical of the European Central Bank’s hyper loose monetary policy since the financial crisis – also said that the financial world is in danger of “encouraging new bubbles to form” thanks to the cash injections into the markets overseen by central banks like the ECB and the Fed.
The comments echo those made by International Monetary Fund Managing Director Christine Lagarde last week, who said that there are “threats on the horizon” for the global economy, which are largely associated with rising debt, despite the fact that “we are seeing some sun break through,” when it comes to a global economic recovery taking root.
“There are threats on the horizon: from high levels of debt in many countries, to rapid credit expansion in China, to excessive risk-taking in financial markets,” Lagarde said in a speech at Harvard University.
Earlier this year, an IMF report warned that China’s huge debt pile could be the trigger for the next financial crisis as borrowing reaches unsustainable levels.
“International experience suggests that China’s credit growth is on a dangerous trajectory, with increasing risks of a disruptive adjustment or a marked growth slowdown,” the report said.
As well as opposing loose monetary policy, Schaeuble is well-known for heavily favouring fiscally responsible policies and defended those beliefs, saying that austerity is “strictly speaking, an Anglo-Saxon way of describing a solid financial policy which doesn’t necessarily see more, or higher deficits as a good thing.”