SHANGHAI: Germany objected on Friday to launching a G20 fiscal and monetary stimulus package to boost global growth, as the major economic powers split over how to battle a menacing downturn.

Government attempts to boost their economies with monetary loosening could be “counterproductive”, Wolfgang Schaeuble said at a Group of 20 finance chiefs meeting in Shanghai.

And he said that fiscal stimulus — essentially governments spending more or cutting taxes — had run its course, and the main recourse to battling a global slump was reform.

Schaeuble had backing from France, but was at odds with the United States, Britain and China, which all backed the use of monetary and fiscal tools to fight a downturn, as well as structural reforms.

US Treasury Secretary Jacob Lew told reporters: “It’s increasingly important to use all the levers of policy that are available, and that means using fiscal levels as well as monetary policy and structural reforms.”

WORLD ECONOMY UNDER ASSAULT: The G20 gathering comes with the global economy assailed on multiple fronts, from slowing growth in host nation China to weak commodity prices. The OECD last week cut its 2016 global growth forecast from 3.3 per cent to 3pc.

Chinese Premier Li Keqiang told the opening ceremony that the meeting came amid “sluggish world economic recovery and growth.”

“Destabilising factors and uncertainties are on the rise,” he said in a video message.

China came under pressure ahead of the meeting to push forward with structural reforms to sustain its growth. Lew told his Chinese counterpart Lou Jiwei that it was crucial for China to support household income and rebalance the economy toward consumption-led growth, according to a report on their meeting from the US Treasury Department.

Lew and Lou “also discussed the importance of China making its transition to a market-determined exchange rate in an orderly and transparent way, while clearly communicating its policies and actions to the market,” the Treasury statement said.

With the yuan currency, also known as the renminbi, under pressure from speculation of a looming devaluation, the governor of the People’s Bank of China sought to reassure markets, saying in Shanghai that China’s economic fundamentals “remain strong”.

“There is no basis for persistent renminbi depreciation from the perspective of fundamentals,” Zhou Xiaochuan said. “We will not resort to competitive devaluations to boost our advantage in exports.” Zhou said China still has some monetary policy space and tools to confront challenges, and that fiscal and structural steps should also be used.

‘NO CRISIS’ SAYS FRANCE: The meeting of finance ministers and central bank governors of the advanced and emerging-market economies comes after the Bank of Japan and the European Central Bank (ECB) have adopted negative interest rates and huge quantitative easing programs.

While the US Federal Reserve has recently moved in the opposite direction, raising interest rates in December, many analysts believe it will delay any more tightening given the frailty of the global economy.

But Schaeuble’s stance challenged the representatives of the world’s top 20 economies, who were also urged by the International Monetary Fund this week to take “bold” action to boost growth and contain risk in a “highly vulnerable” global economy.

Berlin does “not agree on a G20 fiscal stimulus package”, the German minister said.

“Monetary policy is extremely accommodating to the point that it may even be counterproductive in terms of negative side effects.”

“Fiscal as well as monetary policies have reached their limits — if you want the real economy to grow there are no shortcuts without reforms.”

He insisted that reforms were more important and “thinking about further stimulus just distracts from the real task at hand”.

Bank of England governor Mark Carney criticised negative interest rates as a “zero-sum game” that exported problems to other countries.

But he argued that monetary stimulus “can buy time for structural adjustments” and the challenges “demand that our firepower is well-aimed”.

“Several commentators are peddling the myth that monetary policy is out of ammunition,” he said.

And Jeroen Dijsselbloem, president of the Eurogroup representing the 19-nation eurozone, said monetary policy had not come to the end of its usefulness.

“There is always more that can be done,” he said, adding: “It will have to be designed in a very proper way to... have the effects we need on economic growth.”

But French Finance Minister Michel Sapin offered his German counterpart some backing, saying there was “no crisis” in the world economy and “we don’t have to put in action new policies”.

“We don’t need to launch a global fiscal stimulus package,” he said in Hong Kong, but added some countries “may have more capacity and should use their budgetary capabilities to support global growth”.

Schaeuble, known for being frank, has openly criticised the ECB for being too accommodating.

Using spending to mitigate against economic crisis no longer appeared to work, he said, adding that debt levels were too high while growth remained too low.

“The debt-financed growth model has reached its limits,” he said. “If we continue on this path we no longer need to watch television, the walking dead will overwhelm us, particularly in finance and construction.”

Published in Dawn, February 27th, 2016