Should Germany borrow to invest?

OUTSIDE THE headquarters of the German Taxpayers’ Federation in Berlin, a display tracks the public debt in real time. Now displaying a total of just under €2trn ($2.2trn), it has been ticking down since early 2018. Germany’s public-debt ratio, expected to be 58% of GDP in 2019, is as much the envy of other rich countries as its engineering prowess. Thanks to rising labour-market participation, says Michael Hüther of the German Economic Institute, a think-tank, tax revenues per head reached their highest level ever, in real terms, in 2018.

Even so, Germany’s fiscal policy is becoming a subject of debate. Olaf Scholz, the finance minister, has warned that the “fat years” are over. Economic growth is projected to slow this year, reducing the tax take. If he is to meet Germany’s stringent fiscal rule, he must rein in public spending.

The Schuldenbremse (debt brake) was enshrined in the constitution in 2009, when the financial crisis was expected to swell public debt beyond 80% of GDP. It restricts the federal-government deficit to no more than 0.35% of GDP a year unless a downturn hits; any overshoot beyond that must be made up in better times. (The debt brake also affects states’ finances: from 2020, they will be forbidden to run structural deficits.) Some economists, though...



via The Economist: Finance and economics Business Feeds

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