W e d n e s d a y 1 8 S e p t e m b e r 2 0 1 9 A F I N A N C I A L T I M E S 7

INTERNATIONAL

T

he contentious debate over whether or not to

use fiscal stimulus to bolster the eurozone’s

growth usually ends in a stalemate between

hawkish northern countries inclined to pru-

dence and those like Italy that want to loosen

thepublicpursestrings.

Butthistime,thedovesseemtobeintheascendant.

Even in Germany “the debate has shifted a bit”, accord-

ing to Isabel Schnabel, an economics professor and mem-

ber of the German Council of Economic Experts. “There

are more and more people saying that monetary policy

cannot be the only game in town, and if you don’t want

more and more monetary policy the only instrument that

isleftisfiscalpolicy.”

TheEuropeanCentralBankhasbecomemoreforthright

intellinggovernmentstogetonwithfiscalexpansion.Last

Thursday,inadditiontoannouncingnewmonetarystimu-

lus, the central bank substantially strengthened its call on

governmentstoboostaggregatedemand.

ECB president Mario Draghi said countries with room to

loosen their budgets should “act in an effective and timely

manner”. He added that every country should try to let

automatic stabilisers — tax and spending patterns that

causedeficitstomovecountercyclically—“operatefreely”.

He repeated these calls forcefully to a meeting of Euro-

peanfinanceministersinHelsinkithenextday.

One central bank governor said the change in language

moved the ECB collective position closer to Mr Draghi’s

defence of an explicit euro-level fiscal stance at Jackson

Hole in 2014. It is striking that this is less divisive than the

decision to restart central

bank bond purchases: Mr

Draghi said there was

“unanimous consensus

[that] fiscal policy should

become the main instru-

ment” to stimulate

demand.

That may not be

enough to change finance

ministers’ minds “but it can only help”, according to Isa-

belle Mateos y Lago, a BlackRock managing director. She

said many savers — individuals but also pension funds —

“woulddearlyliketoseehigherinterestrates”andtheECB

had sent them a message “that this will happen earlier if

fiscalpolicyturnsmoreexpansionary”.

The stronger ECB language “is very important”, said Ms

Schnabel. “Critics of monetary policy have to make up

theirmind.”

There is also a renewed debate on the EU’s fiscal rules,

which the Finnish government put on the agenda at the

Helsinki ministers’ meeting. The fact that the fiercely dis-

ciplinarian Finns chose to bring up the topic at all was a

signofchangingtimes,oneparticipantreflected.

The meeting received reform recommendations from

the European Fiscal Board. Its report shows that under

current rules, fiscal policy has done little to smooth busi-

ness cycles. They have also failed to protect public invest-

ment in downturns, holding back recoveries and subse-

quentgrowthpotential.

Nobodythinksimprovingtherulesiseasyorevenlikely.

Such are the disagreements over what to do that many

countries oppose even trying. And yet, the more attention

finance ministries pay to the current system’s inability to

stabilisethemacroeconomy,themorethosewithroomfor

moreexpansivebudgetswillhavetocontemplatedoingso.

What could turn that contemplation into action? One

thing would be for central bankers who disagree with Mr

Draghi on monetary policy at least to amplify his message

on fiscal policy. “If the Bundesbank says we need to do

more and we need to do it now, then Germany may

becomemoreactive,”saidMsSchnabel.

Another would be if the economy worsened. Ms Mateos

y Lago said the lack of trust between countries meant “it’s

too soon to tell how far the traditional red lines will move

[and] how big a shift we will see absent a recession”. One

might think forestalling recessions would be finance min-

isters’toppriority.Itmaytakeonetomakethemagree.

[email protected]

GLOBAL INSIGHT

EUROPE

Martin

Sandbu

Eurozone wakes up

to Draghi’s demand

for fiscal stimulus

‘More and more

people [are] saying

monetary policy

cannot be the only

game in town’

B E N JA M I N PA R K I N— MUMBAI

September 7 was to be a triumphant
day as India landed its first mission on
the Moon, joining a global elite of extra-
terrestrial heavyweights.

But bleary-eyed Indians, some up all
night and others just awakening,
watched in dismay as the Indian Space
Research Organisation (ISRO) lost con-
tact with Chandrayaan-2’s landing vehi-
clejustamilefromtheMoon’ssurface.
Prime Minister Narendra Modi, who
had championed the mission, reacted
quickly. In a televised address, he urged
his compatriots to rally behind India’s
space ambitions. And, switching briefly
to English, reminded other nations not
tounderestimatethem.
His most important foreign audience
was north of the Himalayas. India’s
space programme, long framed around
developmental goals such as improving
meteorological and telecommunica-
tions technology, has in recent years
increasingly sought to match China’s
mountingextraterrestrialprowess.
ChinastoleaheadofIndiawithitsown
lunar mission in January, landing the
Chang'e-4 probe on the previously

unexplored far side of the Moon. India’s

high-profile show of force when it

launched an anti-satellite missile in

March came more than a decade after

China’s first test. But India scored a vic-

tory when in 2014 it became the first

Asian nation to send an orbiter to Mars.

China’sfirstmissionisduein2020.

Analysts say India’s lack of manned

space travel is in part because its pro-

gramme, started in the 1960s, largely

eschewed the space-race logic that

fuelled extraterrestrial endeavours

beforethefalloftheBerlinWall.

Instead, it made a name for being

cost-effective — its Mars mission’s cost

of around $74m was roughly a tenth of

the US’s Mars orbiter — and serving

important domestic needs. For exam-

ple, it helped develop technology to

forecast crop quality and alert local

authorities to cyclones. This has deliv-

ered real benefits in helping to evacuate

riskareasaheadofnaturaldisasters.

India “has its own brand in terms of

space”, said Bharath Gopalaswamy, a

security analyst who is writing a book

about the ISRO, referring to its develop-

mental focus. But he said its focus had

shifted: “There is a very strong security

component in the space system that did

notexist,like,10yearsago.”

Thisshifttoagreaterfocusondefence

is in part because of China, which sent

its first manned mission to space in

2003 and sparked alarm with its 2007

anti-satellite missile test. China has also

helped other Asian countries with their

own space projects, creating concern

about perceived encroachment in

India’s backyard, echoing unease about

BeltandRoadinfrastructureprojects.

“China has used space as part of their

diplomacy in a much more effective

fashion,” said Rajeswari Pillai Rajagopa-

lan, a fellow at the Observer Research

Foundation in New Delhi. “We are slow

andwehavealotofcatchinguptodo.”

Most alarming for India is China’s alli-

ance with Pakistan. China last year

launched two satellites for India’s rival.

IthasalsolaunchedoneforSriLanka.

The prospect that India’s two main

strategic antagonists would join forces

in developing extraterrestrial capabili-

ties prompted India to accelerate the

military aspect of its programme and

culminated in the much publicised mis-

sile test, said Ajey Lele, a former Indian

Air Force officer and fellow at the Insti-

tuteforDefenceStudiesandAnalyses.

“It’s in India’s interest to remain pre-

pared for any sort of eventuality

... India’s military preparedness is
going to depend on space in years to
come,”hesaid.
India has carried out space diplomacy
of its own. Mr Modi last month inaugu-
rated an Indian space station in Bhutan,
and in 2017 launched a “South Asia Sat-
ellite” for use by neighbours, excluding
Pakistan. India has already partnered
withJapanforafutureMoonmission.
Additional reporting by Andrea Rodrigues
Anjana Ahujapage 11

Extraterrestrial ambition

India’s failed Moon mission highlights space race with China

Blow: Indians watch news of the

Moon mission, which ended badly

E DWA R D W H I T E— SEOUL

A former top North Korean diplomat

has urged US president Donald Trump

to strengthen sanctions against Kim

Jong Un’s regime, highlighting a sharp

divide on the best way to pressure the

country on denuclearisation.

Thae Yong Ho, North Korea’s former

deputy ambassador to the UK and one

of the most senior officials to have

defected, questioned whether Mr

Trump was “serious” about ending

NorthKorea’snuclearprogramme.

He warned that current sanctions,

which block almost all economic

engagement with Pyongyang, were not

tough enough nor sufficiently enforced

topressuretheNorthKoreandictatorto

abandonhisweaponsarsenal.

“That is really the hypocrisy of Presi-

dent Trump’s way of [reaching] denu-

clearisation; the current administration

knows the sanctions are not enough but

they are not doing anything more,” Mr

ThaesaidinanFTinterview.

The call for a more hardline approach

comes as Pyongyang and Washington

have signalled they might resume bilat-

eraltalkswithinweeks.

But the comments from Mr Thae

highlight a deep divergence among

international experts on what the cor-

rectstrategyshouldbe.

Since 2018, Mr Trump has refused to

weaken economic sanctions. North

Korea has not tested long-range ballistic

missiles or nuclear weapons in that

period but since May it has launched a

series of smaller weapons tests, its first

suchmovessince2017.

John Delury, a North Korea expert at

Yonsei University in Seoul, said

Pyongyang made the “biggest progress”

in its nuclear weapons programme in

2017, immediately after an increase in

sanctions, demonstrating that tougher

economicpressurehadnotcurtailedthe

Kimregime’sarmsdevelopment.

But author and human rights activist

Yeonmi Park, who escaped North Korea

in 2007, said she “definitely” supported

tougher sanctions because the country’s

elitewouldbemostaffected.

Denuclearisation

Leading North Korea defector

calls for tougher sanctions

M E H R E E N K H A N— STRASBOURG

The Dutch government plans tax cuts
and extra investment next year, setting
asidesomeofitsusualfiscalprudencein
a response to the threat of a regional
economicslowdown.
Wopke Hoekstra, the Netherlands’
finance minister, announced €3bn of
tax cuts for households and outlined
plans for an investment fund as part of
annual budget proposals. However, cuts
incorporatetaxrateswillbehalted.
Mr Hoekstra said that the plans were
designed to protect “robust” economic
growth.
“We are working not only on our cur-

rentprosperitybutalsoonthatoffuture

generations,” Mr Hoekstra told parlia-

ment. “The country is in a better posi-

tion to absorb economic setbacks in the

future.”

The plans to stimulate the economy

come as eurozone governments that

have capacity to spend more — includ-

ingtheNetherlands—arebeingurgedto

dosotoarrestaslowdowningrowth.

Calls for fiscal expansion have been

led by Mario Draghi, president of the

European Central Bank. He has

implored governments to take up the

baton to aid the bloc’s economy recov-

ery after the ECB cut interest rates to

freshrecordlowslastweek.

TheDutcheconomyhasbeengrowing

steadily for several years but is exposed

to any fallout from a chaotic no-deal

Brexitandglobaltradetensions.

Growth in the Netherlands is

expected to slow to 1.8 per cent this year

and1.5percentin2020.

Long known for fiscal prudence, the

centre-right Dutch government has

embraced a move towards investment

andcutsintaxburdensforworkers.

Among the most innovative ideas to

lift spending, the government will

explore the creation of an investment

fund to lock in negative borrowing rates

tofinancegrowth-enhancingprojects.

The size of the fund has not been

revealed but has been touted at around

€50bn. It would target long- and medi-

um-term spending projects in infra-

structure, digital, and climate friendly

projects.

“Low interest rates provide opportu-

nities for this,” said Mr Hoekstra. “We

will explore avenues to invest more in

innovation, knowledge development

andinfrastructure.”

The government will present a blue-

print for the fund to the Dutch parlia-

mentin2020.

The Dutch shift towards stimulus will

put pressure on fellow fiscal hawks, led

byGermany,tospendtheirwaythrough

a looming downturn. This month Olaf

Scholz, German finance minister, pre-

sented a draft federal budget that held

firm to the country’s “black zero” policy

to avoid new borrowing. Mr Scholz has

since promised to spend “many bil-

lions”counteractingadownturn.

Mr Hoekstra announced the stimula-

tive measures alongside figures project-

ing that the country’s ratio of debt to

gross domestic product will fall below

50percentnextyear.

The Netherlands is still expected to

boast a fiscal surplus in 2020 of close to

1percentofGDPafterthemeasures.

Editorial Commentpage 10

Europe

Netherlands rolls out growth strategy

Tax cuts and increase in

investment planned to

mitigate slowdown risk

‘The

country is

in a better

position to

absorb

economic

setbacks in

the future’

TO B I A S B U C K— FREIBURG

In the global battle against climate
change, the German city of Freiburg
offersararesuccessstory.
Overmorethan30years,theprosper-
ous city in the Black Forest has used
every lever at its disposal to cut green-
house gas emissions. It has invested in
renewable energy, imposed Germany’s
strictest building standards, con-
structed an entire low-emissions neigh-
bourhood, built bicycle lanes and tram
linesandpushedcarsoutofthecitycen-
tre. The result is that greenhouse gas
emissions in the city of 230,000 people
have fallen more than 37 per cent per
head since 1992, significantly better
thantheGermanaverage.
As political leaders in Berlin prepare
toadoptafar-reachingpackageofmeas-
ures to cut carbon emissions on Friday,
thecityhighlightstheimportance—and
the limits — of local actors in the strug-
gleagainstclimatechange.
At the same time, Freiburg has served
as a laboratory for the kind of policies
Europe’s largest economy will need to
meet its climate reduction targets for
2030 and become carbon-neutral by
2050,asBerlinhasvowed.
“The big challenges that are discussed
at the international level, including cli-
mate change, they ultimately have to be
addressedatthelocallevel,”saidMartin
Horn,thecity’smayor.
“It is up to us to decide whether we
spendmoneyonanewfour-laneroador
onanewtramline.Wecandoalotatthe
local level — and that is what we have
doneinFreiburgformanyyears.”
Beginning in 1996, the city set itself a
series of climate targets that have been
periodically sharpened. Freiburg is now
committed to lowering carbon emis-
sions by 60 per cent by 2030, more
ambitiousthanthenationalobjective.
While political leaders in Berlin are
finalising details of the national climate
package, Freiburg’s council unani-
mously agreed its latest climate pact in
March. It includes, among other things,
a planned neighbourhood for up to

15,000 residents that will be entirely

emissions-neutral. A carbon-neutral

football stadium is also in the works, as

is a further expansion of public trans-

portandarenewedclampdownoncars.

Thebarrageofmeasuresenjoysbroad

political backing and draws on green

campaigningsincethe1970s,whenlocal

protests succeeded in blocking plans for

a nuclear power station. Today, “people

in Freiburg demonstrate not because

they think we do too much for the cli-

matebuttoolittle”,saidMrHorn.

The city’s pioneering reputa-

tion attracts more than 200 interna-

tional delegations every year who come

toinspectitsgreenprogrammes,includ-

ing from China, South Korea, Australia

andtheUS.Theyfindanapproachtocli-

mate policy that centres not on one or

two sweeping reforms but on myriad

individual measures — many of them

small and seemingly unspectacular —

that are refined over many years.

“Youhavetoproceedonanincredibly

broad front,” said Klaus von Zahn, the

head of the city government’s depart-

mentfortheenvironment.

Transport is a case in point. After a

decades-long campaign to prioritise

green means of transport over cars, the

shareofcitytripsmadebybikehasrisen

from 15 per cent in 1982 to 34 per cent

today. Car journeys account for 21 per

cent,downfromalmost40percent.

Much of the picturesque inner city is

reserved for cyclists, pedestrians and

trams. Parking space has been reduced,

and 90 per cent of roads are subject to a

30kmhspeedlimit.

“All this means that the bicycle is now

the fastest mode of transport in the

city,”saidMrvonZahn.

Another example are buildings such

as Freiburg’s new city hall, which is cov-

ered by more than 2,000 solar panels

and generates more energy than it uses.

Like all new municipal buildings in the

city, including schools and kindergar-

tens, it is required to be at least

emissions-neutral.Privatehomeowners

can request a free visit from one of the

city’s climate advisers to help reduce

emissionsandenergybills.Residentson

welfare can apply to have their old

fridge swapped for a new, energy-saving

one—paidforbythelocalgovernment.

The most imposing symbol of Frei-

burg’s green ambitions is Vauban, a

former French army barracks that has

been turned into a low-emissions neigh-

bourhood for 5,500 people. Cars are

mostly banned, buildings are designed

to release as little heat as possible and

solar panels are ubiquitous. Yet for all

Freiburg’s climate measures, the limits

oflocalactionarealsoplain.

Hans-Martin Henning, a Vauban resi-

dent and the director of the Freiburg-

based Fraunhofer Institute for Solar

Energy Systems, said: “Freiburg has

done a lot of things that do not look

spectacular but that were highly effec-

tive.”

But he added: “When it comes to the

grandpoliticalframework,acityispow-

erlessattheendoftheday.”

Robin Hardingpage 11

Germany.Climate change

Freiburg sets the pace in carbon reduction

The Black Forest city shows

the benefits but also the

limitations of local action

Garden city: the former

French barracks at

Vauban has been turned

into a low-emission

neighbourhood —Alamy

37 %

Reduction in

greenhouse

emissions per

head in Freiburg

since 1992

60 %

Target set by

city authorities

for lowering

emissions

by 2030

200

International

delegations that

visit city’s green

programmes

each year

21 %

Journeys taken

by car in the

city, down from

40 per cent

in 1982

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