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Tag Archives: Germany

It’s Finally Time for German Fiscal Stimulus

TweetSeptember 30, 2019 — As long as the German economy was doing well, as it was during the recovery from the 2008 global financial crisis, there existed a coherent rationale for German fiscal austerity.  The national commitment to budget discipline was enshrined in the 2009 “debt brake,” which limits the federal structural deficit to 0.35% of GDP, and by the 2011 “schwarze Null” (that is, “black zero”) policy of fully balancing the budget.  Indeed Angela Merkel’s government proudly...

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Is the German Debt Brake the worst fiscal rule ever?

The answer is probably not: a simple balance budget is worse. The German Schuldenbremse fixesthe total cyclically adjusted deficit at 0.35% of GDP, which implies a gradually falling debt to GDP ratio. If actual outturns exceed this figure, there is a control mechanism which reduces the permitted deficit to get the path of debt back on target. So this debt brake improves on a simple balance budget by allowing a very modest deficit and cyclically adjusting. On the other hand it is worse than a...

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Implications of German export success

I have finally got around to reading this excellent CEPR ebookon Germany’s exceptional recovery. That German GDP growth since the Global Financial Crisis (GFC) is higher than average Eurozone growth or French growth can be seen below. GDP growth (source OECD Economic Outlook)However the relative performance in terms of unemployment is remarkable. Unemployment (national definitions, source OECD Economic Outlook)The tremendous success in reducing unemployment is discussed in two papers in the...

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Fiscal policy remains in the stone age

Or maybe the middle ages, but certainly not anything more recent than the 1920s. Keynes advocated using fiscal expansion in what he called a liquidity trap in the 1930s. Nowadays we use a different terminology, and talk about the need for fiscal expansion when nominal interest rates are stuck at the Zero Lower Bound or Effective Lower Bound. (I slightly prefer the latter terminology because it is up to central banks to decide at what point reducing nominal interest rates further would be...

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Why German wages need to rise

An interesting disagreementoccurred this week between Martin Sandbu and the Economist, which prompted a subsequent letterfrom Philippe Legrain (see also Martin again here). The key issue is whether the German current account surplus, which has steadily risen from a small deficit in 2000 to a large surplus of over 8% of GDP, is a problem or more particularly a drag on global growth. To assess whether the surplus is a problem, it is helpful to discuss a key reason why it arose. I have talked...

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Post-truth and propaganda

A long read on why it is time the rest of the media stopped treating Fox as TV news, and some UK tabloids as newspapers.George Osborne becomes editor of the London Evening Standard. Donald Trump blames GCHC for bugging him because of something he saw on Fox News. The lines between right wing media and right wing politicians seem very blurred nowadays. This should not come as a surprise, because right wing media have been becoming much more like propaganda outlets than normal media...

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International GDP per capita comparisons

As I have noted before, it is one of the great ironies of UK politics that recent growth only looks respectable because of immigration. Because mediamacro does not connect dots, politicians can get away with talking about a solid UK recovery, even though it is only half respectable because of the immigration they say must be reduced. But large migration flows are not just a UK experience. The focus on GDP rather than GDP/capita distorts international comparisons as well. I conducted a small...

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German macroeconomics revisited

At the end of April George Bratsiotis and David Cobham organised a conferencewith the provocative title “German macro: how it's different and why that matters” which I unfortunately was not able to attend. Six of the papers presented, plus some additional papers on related themes, are published here. The papers by Peter Bofinger and Michael Burda are related to earlier work by both authors that I have discussed in earlier posts hereand here. Many of the themes in these papers have been...

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Financial populism in Germany

photo: fdecomite In May 2015 the European Central Bank published a working paper by U. Bindseil, C. Domnick and J. Zeuner entitled “Critique of accommodating central bank policies and the ‘expropriation of the saver’. A review“. At first sight, this looks like a common paper of literature review. However, in the first line of the Abstract one can read: “In parts of the German media, with the support of a number of German economists, the ECB’s low nominal interest rate policy is...

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Understanding the austerity obsession

It has often been argued, loosely following Keynes, that economists should be like doctors Martin Wolf writes“The austerity obsession, even [sic] when borrowing costs are so low, is lunatic”. The IMF, the OECD and pretty much the wholeof informed opinion agree. Yet those subject to this austerity obsession are in charge of levels of public investment in the the US, Germany and the UK. One interesting question that arises is whether they are all suffering from the same disease? The diagnosis...

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