With the German economy close to recession, European Central Bank President Mario Draghi has rightly urged eurozone governments to provide more fiscal stimulus. And acknowledging the interaction between fiscal and monetary policy would leave critics much less room for ECB-bashing.
CAMBRIDGE – Over the past couple of months, the German debate over fiscal and monetary policy has taken an interesting turn. Old, deeply ingrained economic dogmas, including that the public sector must strive to generate a fiscal surplus regardless of macroeconomic conditions, are being reappraised, at least by some.
The economic situation is changing rapidly for the worse. The German economy – long the engine of eurozone growth – is undeniably sputtering. Powerful underlying currents are contributing to the slowdown. As a result, there is a high probability of a typical German recession (in terms of depth and duration), if not worse.
The main headwind, of course, is the uncertainty emanating from the highly contentious global trade environment. This is particularly threatening for open economies like Germany and its neighbors, which are deeply integrated into its manufacturers’ value chains.
CAMBRIDGE – Over the past couple of months, the German debate over fiscal and monetary policy has taken an interesting turn. Old, deeply ingrained economic dogmas, including that the public sector must strive to generate a fiscal surplus regardless of macroeconomic conditions, are being reappraised, at least by some.
The economic situation is changing rapidly for the worse. The German economy – long the engine of eurozone growth – is undeniably sputtering. Powerful underlying currents are contributing to the slowdown. As a result, there is a high probability of a typical German recession (in terms of depth and duration), if not worse.
The main headwind, of course, is the uncertainty emanating from the highly contentious global trade environment. This is particularly threatening for open economies like Germany and its neighbors, which are deeply integrated into its manufacturers’ value chains.