critics fear that the high debt could threaten the stability of the state finances. It also complained that due to excessive debt, future generations are burdened. Other by the growing state debt were due to the crisis is inevitable, and given the low interest rates also harmless.
debts are an important Instrument of financial policy
in fact, the state debt is an important Instrument of financial policy, and an increase in the time of crisis. At the same time, it is important, after the crisis in a timely manner change course. Currently, it allow low, sometimes even negative interest rates, to live with high state debt, without the public budgets are overburdened by interest payments. In addition, many investors are looking for in the crisis-proof investment opportunities, including government bonds, at least, the more financially stable countries in Europe. That the government debt a burden on future generations, this is not true, but speaks against the current budget deficits. The Person
Clemens Fuest, born 1968 in Münster, Germany, in April 2016, the President of the ifo Institute. He was from 2007 to 2010, Chairman of the Scientific Advisory Board at the Federal Ministry of Finance and from 2013 to 2016 President of the centre for European economic research (ZEW) in Mannheim. Previously, he was Professor at the universities of Cologne and Oxford.
There is no sensible Alternative to increasing state debt in the Corona-crisis
Without higher borrowing could not support the state of the economy in the current crisis. To abandon it would mean a much deeper economic slump to take. That would be a burden on the state finances, and in addition, a lot of assets to destroy. Future generations would be burdened also. It is crucial, after the crisis, the fiscal policy is oriented to the consolidation of the public finances. However, you should not start too early, because otherwise the economic recovery is at risk.
advocates of high levels of public debt, highlighting that the state must be different than private households pay off debt. Typically, households debts, you take, for example, for home purchase have to pay back prior to retirement, because then your income drops. Revenue of States are not limited by the range of the professional activities of individual people. States need to ensure that the state remains in the debt ratio in the stable.
economic growth and debt reduction should go Hand-in-Hand
a Solid financial policy is not going to mean currently, short-term government debt, but to signal credibly that the state is headed in the debt ratio after the economic recovery, step back. This is done ideally by dynamic economic growth. Since the debt ratio decreases already when the debt is rising more slowly than the gross domestic product.
is not, However, be borne in mind that the Corona pandemic was the last economic crisis. It is important, the debt to GDP ratio in the years after the crisis due to the slump in the economy new spaces for the stabilization available. Therefore, Germany should set themselves to reduce the debt ratio over the medium term, again in the direction of 60 percent.
This policy would not only create room for manoeuvre for the future, but also the confidence of the creditors strengths and interest costs. In addition, if spending cuts and tax increases are necessary, they should be designed in such a way that loads are distributed fairly, and the economy will affect growth as little as possible. Book tip
This guest post is a short version of the 4. Chapter from the book “How we save our economy – of the way from the corona crisis” by Clemens Fuest. It appears on 15. July in the Aufbau Verlag.
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