Germany’s Fiscal Follies
German Chancellor Angela Merkel's government has taken a peculiarly aggressive line in attacking budget deficits and loose monetary policy worldwide and repudiating them at home. But, while that stance resonates deeply with German voters, it makes no sense economically, particularly given Germany's commitment to European integration.
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PRINCETON – All over the world, public-sector deficits are exploding. Governments face massive costs rescuing banks and businesses hit by the financial and economic crisis. There is a universal consensus that Keynesian stimulus is needed. At the same time, policymakers are looking more and more nervously for an “exit strategy.” They know that they cannot run deficits forever, but they do not want to say when the painful exit should begin.