The United States has made some bad fiscal choices, in particular by cutting taxes for the rich at the peak of the business cycle. German policymakers should not make the symmetric mistake of preserving the country’s budget surplus as the economy risks sliding into recession.
CAMBRIDGE – As long as Germany’s economy was recovering well from the 2008 global financial crisis, policymakers had a coherent rationale for fiscal austerity. Rejecting other eurozone countries’ constant urging that they undertake stimulus, they enshrined the national commitment to budget discipline in the 2009 “debt brake,” which limits the federal structural deficit to 0.35% of GDP, and in the subsequent schwarze Null (“black zero”) policy of fully balancing the budget.
CAMBRIDGE – As long as Germany’s economy was recovering well from the 2008 global financial crisis, policymakers had a coherent rationale for fiscal austerity. Rejecting other eurozone countries’ constant urging that they undertake stimulus, they enshrined the national commitment to budget discipline in the 2009 “debt brake,” which limits the federal structural deficit to 0.35% of GDP, and in the subsequent schwarze Null (“black zero”) policy of fully balancing the budget.