While the news is shocking, it is not at all surprising as the Germans are now following France and Italy down a path of spending, and sending – the budgets of European countries will be tested in the coming 5 years. The question is just how much control will they have as the population ages and newcomers settle down and become a scared generation.
We saw the warning signs and produced an audiovisual presentation back on December 12th, 2019, which we called “French Budget Implodes” while thinking that the budgets of Europe would get more and more attention in 2019 and beyond.
For Germany, the the debt brake, a 10-year old fiscal rule that prevents the country from making serious mistakes like running a budget deficit, is now being reconsidered. The question that Germans are asking is, does this fiscal rule make sense? The rule was put in place in 2008 and 2009 for obvious reasons but the rigid rules will start to fade, according to Guy Chizan in the FT, where this article was sourced.
“In view of the huge investment needs that Germany now has, it has become a hindrance,” said Michael Huther, Head of the German Economy Institute. The debt brake was introduced in 2009 after the global financial crisis blew a hole in Germany`s public finances. And it has helped Germany run a balanced budget every year since 2014, well after the country had clear challenges in the early 2000s when the government made all elected Germans responsible for keep the pursestrings tight.
In the early 2000s, Germany was visited with high unemployment and slow growth, with markets calling it the sick man of Europe – but things have changed and it is now the star of Europe so spending for growth can make sense if it is done properly. If this rule is changed, Germany can start spending and give its economy a shot in the arm, bring back faster growth.
Currently, there is a growing concern about the lack of investment in infrastructure so there are growing cries for spending, hence the question about changing the rules. The German economy needs a boots and Germans would start spending more.