The German government can take over under 2 € in debt over the next decade without risking damaging growth, according to a financial analysis of a survey of Eurozone economists supporting the potential Friedrich Merz’s Fiscal’s Bazooka.
A survey of economists conducted last week estimated that Europe’s largest economy could increase its fiscal burden from its current 63 percent GDP level to 86 percent of GDP over the next decade without negative consequences. 28 Economists’ responses mean a fiscal space of 1.9 €.
“Germany has a huge fiscal capacity,” said Marcello Messori, a professor at the European University Institute, Florence, adding that the space to create more debt should be used to push Germany and the wider European economy to “high -tech sectors and an effective green transition”.
The findings come after Merz, the head of the center -right Christian Democrats and his potential coalition partner, the Social Democrats, on Tuesday discovered plans to increase the country’s infrastructure and increase protection costs.
Economists predict that the very necessary fiscal bazooka, which follows more than five years of economic stagnation, can lead to an additional 1 € to public borrowing over the next decade.
“The main point,” said Jesper Rangvid, a professor at the Copenhagen Business School, who estimated that the manageable debt level stands at 80 percent “or maybe 90 percent”, was that Germany had “space to borrow responsibilities” to pay for the back improvement of reflection and infrastructure.
“Critical infrastructure, such as inefficient inefficient rail system and in general its infrastructure, also digital infrastructure, should be improved,” he said.
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FT calculations of 1.9 € in the fiscal space assume that the German nominal GDP will increase by 2 percent per year from € 4.3TN to € 5.4 to 2035.
Many participants emphasized that additional borrowing had to be combined with structural reform to increase the country’s production capacity.
“Only money will not solve challenges,” said Ulrich Kater, Chief Economist Deka Bank based in Frankfurt.
Willem Buiter, a former CITI leader and adviser in Malayecon, described the German economy as “grotesically regulated”.
On Saturday, potential coalition partners describes further details of policies that clash with economists’ calls.
Instead of cutting red strips and issuing broad pro-growth reform, the potential coalition instead promised new state-owned benefits-including higher pensions for non-working mothers, a VAT cut for restaurants and a reset of fuel subsidies for farmers.
Bert Fossbach, co -founder of the German assets manager Flossbach von Storch, said before the announcement on Saturday that the flexibility of the new government to spend large protection could create “more room to increase social consumption and blow the state of welfare even further”.
Lorenzo Codogno, founder and main economist of LC Macro Advisors, said Germany’s “real problem” was its model that has prevailed over the past 20 years and was dominated by “sophisticated but old industries”. Germany also needed “leading, innovative company,” he said.
“German industries have stalled in a trap of middle -tech” and the place needed to “modernize” its production, said Anti Alaja, an economist at the Finnish Center for new economic analysis.
Stefan Hofrichter, an economist at Allianz Global Investors, blamed the country’s bureaucracy and tax regime, saying the economy withdrew from “very rigid bureaucracy” and “very high corporate taxes”, which “contributed to private sub-investments”.
Jörg Krämer, the chief of economist of Commerzbank, urged Merzi to call the state’s influence on the economy and to “trust citizens and corporations” instead in an impetus for “better business conditions”.
The findings were based on 28 quantitative answers to a question whether, leaving aside any legal borrowing limit, Germany could increase its federal debt without consequences on growth.
A widely quoted 2010 study by Kenneth Rogoff and Carmen Reinhart suggested that debt that exceeds 90 percent of GDP damages growth, but subsequent research has challenged this conclusion.
“Economic literature does not provide a certain answer to the proper level of public debt,” said Isabelle Mateos Y Lago, the group chief in BNP Paribas, adding that debt dynamics driven by nominal growth and borrowing costs were more important.
All 41 economists who answered a question on the strict debt brake of Germany, which blocks additional expenses by 0.35 percent of GDP, said the borrowing rule, rather than 2009, should be facilitated.
More than a quarter – or 29 percent of respondents – said it should be fully repealed, which 41 percent or regulated to provide “much more flexibility”. The remaining economists supported a moderate reform to present “a little more flexibility”. No one called the rule to remain unchanged or hardened it.
“(The German obsession with fiscal prudence has been overloaded and the reforms are delayed,” said Martin Moryson, the global leader of the economy in the German DWS assets, adding that the government at the entrance “clearly” understood the size of the task and stands in the challenge.
However, lawmakers for the Green Party said on Sunday that they opposed, in their current form, Merz plans to create fiscal space through the movement of protection costs over 1 percent of GDP outside the debt brakes.
Their opposition may disrupt plans, which require changes to the German Constitution and a two -thirds majority in the upper room of Parliament, the Bundesrat, to pass.
Visualization of Data by Oliver Roeder in London
