IfW in the News

Germany argues over dividing spoils of long economic boom

11.12.2017

Jens Boysen-Hogrefe considers the financial latitude of the federal government in Germany as low, despite current high budget surpluses

Excerpt from the article

(...) While other EU countries, still grappling with the consequence of years of crisis, wrestle with what to cut and where, the next government in Berlin is likely to be trimming taxes and increasing spending. Officials say it will have a €30bn surplus to play with over the next four years — a luxury its neighbours can only dream of.

“The situation with the budget is unprecedented,” says Jens Boysen-Hogrefe of the Kiel Institute for the World Economy. “Either by luck or coincidence, there is significant financial headroom. Any coalition government that’s formed will have a lot of money to give away.”

(...)

And some economists are also warning that the surplus, once spent, may not come back. Jens Boysen-Hogrefe says it arose because of a booming labour market — employment is at its highest level since German reunification — and low interest rates on German debt. Such factors are temporary, he says, and Germany still faces stiff demographic headwinds, with an ageing population and shortage of skilled labour.

“After four years we have to assume that the budget will be in a much more difficult situation than it is now,” he says. “We should be careful.”

Expert