Recession: scrap the balanced budget policy?

According to reports in the media in the event of a recession the German government is prepared to abandon the "Black Zero" policy of maintaining a balanced budget without deficit spending which has enabled Germany to avoid making any new debt in the last five years. Gaps in the budget resulting from lacking tax revenues could be plugged through the move. Commentators are at odds over whether this is the right course.

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Neue Zürcher Zeitung (CH) /

Germany needs to increase its spending

To fight off the looming recession the German government must finally end the austerity policy, writes Düsseldorf-based economist Jens Südekum in the Neue Zürcher Zeitung:

“Germany has two options. Either it tears itself apart in bitter conflicts over distribution - young against old, poor against rich, cities against rural areas - and loses its way. Or it takes pragmatic action and begins promptly with massive public investment in order to move forwards and at the same time boost private investment. This makes sense from an economic perspective. Because to head off the looming downturn the German state must change not just the way it spends its money, it must also spend more.”

Deutschlandfunk (DE) /

Don't saddle future generations with more debt

Deutschlandfunk doesn't think much of the calls for Germany to take out loans to finance new investments:

“The temptation to do this is very great right now. But even if from today's perspective this can't happen quickly enough, at some point interest rates will go up again. And sooner or later they would have to be paid on the new loans that are so cheap today. Those who want this on the basis of intergenerational justice should make this clear. In short: it would be rash and irresponsible to even think of getting into debt as soon as a cool wind starts to blow. There's plenty of leeway with the budgets, particularly since there is home-made folly that deserves to be scrutinised more closely. ... Not to mention the increased revenues that would result from a vigorous campaign against tax avoidance tricks and tax fraud.” (ES) /

Berlin is prepared for emergencies

Political scientist Miguel Otero Iglesias argues in that the criticism of Germany's budget policy is wrong:

“Many people think Germany is obsessed with fiscal discipline and won't break with its creed of keeping the public budget in the black. I believe they are wrong. Berlin has reduced the public debt from 80 to 60 percent in the last ten years precisely in order to have a sufficient Keynesian arsenal [to boost the economy through government spending and an expansive monetary policy] at its disposal when needed. Germany will use the money if necessary (as will France). And this will also prevent a recession in Spain, or at least ensure that it is mild.”