The German government could take a little less than 2 euros in debt in the next decade without running the risk of damage to growth, according to an analysis of the Financial Times of a survey of economists in the euro zone which supports the Bazooka Tax of Friedrich Merz of Friedrich Merz.
A survey of economists carried out last week estimated that the largest economy in Europe could increase its budgetary load by its current level by 63% of GDP to 86% of GDP in the next decade without negative repercussions. The 28 responses of economists involve a budgetary space of 1.9 TN €.
“Germany has a great budgetary capacity,” said Marcello Messori, a professor at the European University Institute, Florence, adding that the space to create more debts should be used to push Germany and the broader European economy to “high -tech sectors and an effective green transition”.
The results are involved after Merz, head of Christian democrats in the center-right, and his probable coalition partner, the social democrats, on Tuesday unveiled plans to stimulate the country’s creaky infrastructure and increase defense expenses.
Economists provide that the essential budgetary bazooka, which follows more than five years of economic stagnation, could lead to an additional € public loan during the next decade.
“The key point,” said Jesper Rangvid, professor at Copenhagen Business School, who estimated that the level of manageable debt amounts to 80% “or perhaps 90%”, was that Germany had “the place to use responsiblely”, to urgently pay the rearmament and the improvements in the necessary infrastructure.
“Critical infrastructure, such as the notoriously ineffective rail system and, more generally, its infrastructure, also digital infrastructure, must be improved,” he said.
The FT calculations of the 1.9 TN of euros in the budgetary space assume that the German nominal GDP will increase by 2% per year by 4.3 TN to 5.4 TN of euros by 2035. This estimate is probably conservative, because it does not take into account the growth of real GDP, if the inflation corresponded to the target of the European central bank.
Many participants stressed that the additional loan should be combined with a structural reform to increase the country’s productivity capacity.
“Money alone will not resolve the challenges,” said Ulrich Kater, chief economist of Deka Bank, based in Frankfurt.
Willem Buiter, former chief economist of Citi and advisor to Maverecon, described the German economy as “grotally surregulated”.
On Saturday, probable coalition partners described other policy details that come up against economists’ calls.
Instead of cutting administrative formalities and triggering a pro -growth scanning reform, the probable coalition has rather promised new state advantages – including higher pensions for mothers who do not work, a reduction in VAT for restaurants and a reintroduction of fuel subsidies for farmers.
Bert Flossbach, co-founder of the Director of German assets, Flossbach von Storch, said before the announcement that the flexibility of the new government to spend in defense could create “more space to increase social consumption and further inflate the welfare state”.
Lorenzo Codogno, founder and chief economist of Macro-LC advisers, said that the “real problem” of Germany was its model which has prevailed in the past 20 years and was dominated by “sophisticated but old industries”. Germany also needed “advanced innovative companies,” he said.
“The German industries are stuck in an average technological trap” and the country had to “modernize” its manufacture, said Antti Alaja, an economist in the Finnish Center for New Economic Analysis.
Stefan Hofrichter, an economist at Allianz Global Investors, blamed the country’s bureaucracy and tax regime, saying that the economy had been driven by a “too rigid bureaucracy” and “too high taxes” which both “contributed to private under-investments”.
Jörg Krämer, chief economist of Commerzbank, urged Merz to resume the influence of the State on the economy and to “trust citizens and businesses” instead in pressure for “best commercial conditions”.
The results were based on 28 quantitative responses given to a question on the question of whether, leaving aside the legal borrowing limits, Germany could increase its federal debt without repercussions on growth.
A 2010 study widely cited by Kenneth Rogoff and Carmen Reinhart suggested that debt greater than 90% of GDP growth, but subsequent research has challenged this conclusion.
“Economic literature does not provide a final response to the appropriate level of public debt,” said Isabelle Mateos y Lago, group’s chief economist at BNP Paribas, adding that debt dynamics motivated by nominal growth and borrowing costs were greater.
The 41 economists who answered a question on the strict debt brake of Germany, which locks additional expenditure to 0.35% of GDP, said that the borrowing rule since 2009 should be mitigated.
More than a quarter – or 29% of respondents – said it should be completely abolished, which 41% or revised to offer “much more flexibility”. The remaining economists have supported a moderate reform to introduce “a little more flexibility”. No one called on the rule to be unchanged or hardening it.
“”[The] The German obsession for budgetary prudence is exaggerated and the reforms are late, “said Martin Mormys, World Economy Manager at the Director of German Assets DWS, adding that the entering government had” obviously “understood” the extent of the task and resists the challenge “.
However, the legislators of the Green Party said on Sunday that they opposed, in their current form, Merz plans to create a budgetary space by moving defense expenses above 1% of GDP outside the braking of the debt.
Their opposition could thwart the plans, which require changes to the German Constitution and the majority of two thirds of the upper room of the Parliament, the Bundesrat, to pass.
Visualization of data by Oliver Roeder in London
