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Future fiscal and debt policies: Germany in the Context of the European Monetary Union

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  • Hein, Eckhard
  • Truger, Achim

Abstract

Currently fiscal policies in Germany seem to be in a very comfortable position and the German Debt Brake is regarded as an institutional precondition for this success and has been exported to the Euro area in the guise of the Fiscal Compact. In this paper we scrutinize German fiscal policies and its new national and European institutional constraints from a macroeconomic perspective. We start by reiterating the requirements for fiscal policies of member countries in a currency union like the Euro area from a Post-Keynesian perspective and examine German fiscal policies in the period from 1999 until 2007 against this theoretical background. We then turn to German fiscal policies during the Great Recession, the German Debt Brake, the Fiscal Compact and future perspectives, and analyse the associated problems and risks. Finally, we discuss alternative scenarios which could avoid the deflationary pressures of the German Debt Brake and the Fiscal Compact on domestic demand and contribute to internally rebalancing the Euro area.

Suggested Citation

  • Hein, Eckhard & Truger, Achim, 2013. "Future fiscal and debt policies: Germany in the Context of the European Monetary Union," IPE Working Papers 24/2013, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    • Handle: RePEc:zbw:ipewps:242013
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    References listed on IDEAS

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    2. Eckhard Hein & Lena Vogel, 2009. "Distribution and Growth in France and Germany: Single Equation Estimations and Model Simulations Based on the Bhaduri/Marglin Model," Review of Political Economy, Taylor & Francis Journals, vol. 21(2), pages 245-272.
    3. Eckhard Hein & Achim Truger & Till van Treeck, 2011. "The European Financial and Economic Crisis: Alternative Solutions from a (Post-) Keynesian Perspective," IMK Working Paper 9-2011, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
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    7. Till van Treeck & Silke Tober & Achim Truger & Michael Brecht, 2010. "Squaring the circle in Euroland? Some remarks on the Stability and Convergence Programmes 2010-2013," IMK Working Paper 3-2010, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
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    9. Anthony P. Thirlwall, 2011. "The Balance of Payments Constraint as an Explanation of International Growth Rate Differences," PSL Quarterly Review, Economia civile, vol. 64(259), pages 429-438.
    10. Eckhard Hein & Engelbert Stockhammer, 2010. "Macroeconomic Policy Mix, Employment and Inflation in a Post-Keynesian Alternative to the New Consensus Model," Review of Political Economy, Taylor & Francis Journals, vol. 22(3), pages 317-354.
    11. Christian Dreger & Jiri Slacalek, 2007. "Finanzmarktentwicklung, Immobilienpreise und Konsum," DIW Wochenbericht, DIW Berlin, German Institute for Economic Research, vol. 74(35), pages 533-536.
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    17. Eckhard Hein & Achim Truger, 2007. "Fiscal Policy and Macroeconomic Performance in the Euro Area: Lessons for the Future," Palgrave Macmillan Books, in: Jörg Bibow & Andrea Terzi (ed.), Euroland and the World Economy, chapter 8, pages 154-183, Palgrave Macmillan.
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    26. Eckhard Hein, 2012. "The Macroeconomics of Finance-Dominated Capitalism – and its Crisis," Books, Edward Elgar Publishing, number 14931.
    27. Eckhard Hein, 2013. "The crisis of finance-dominated capitalism in the euro area, deficiencies in the economic policy architecture, and deflationary stagnation policies," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 36(2), pages 325-354.
    28. Eckhard Hein & Achim Truger, 2007. "Germany’s Post-2000 Stagnation in the European Context — a Lesson in Macroeconomic Mismanagement," Palgrave Macmillan Books, in: Philip Arestis & Eckhard Hein & Edwin Heron (ed.), Aspects of Modern Monetary and Macroeconomic Policies, chapter 12, pages 223-247, Palgrave Macmillan.
    29. Hein, Eckhard, & Mundt, Matthias., 2012. "Financialisation and the requirements and potentials for wage-led recovery : a review focussing on the G20," ILO Working Papers 994709323402676, International Labour Organization.
    30. Achim Truger & Katja Rietzler & Henner Will & Rudolf Zwiener, 2010. "Alternative Strategien der Budgetkonsolidierung in Österreich nach der Rezession," IMK Studies 02-2010, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    31. Louis-Philippe Rochon & Mark Setterfield, 2007. "Interest rates, income distribution, and monetary policy dominance: Post Keynesians and the "fair rate" of interest," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 30(1), pages 13-42.
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    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Eckhard Hein & Daniel Detzer, 2014. "Coping with imbalances in the Euro area: Policy alternatives addressing divergences and disparities between member countries," Working papers wpaper63, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project.
    2. Detzer, Daniel & Hein, Eckhard, 2014. "Financialisation and the financial and economic crises: The case of Germany," IPE Working Papers 44/2014, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    3. Jörg Bibow, 2013. "Lost at Sea: The Euro Needs a Euro Treasury," IMK Studies 35-2013, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    4. Daniel Detzer & Eckhard Hein, 2014. "Finance-dominated capitalism in Germany – deep recession and quick recovery," Working papers wpaper54, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project.
    5. Eckhard Hein & Achim Truger, 2014. "Fiscal Policy and Rebalancing in the Euro Area: A Critique of the German Debt Brake from a Post-Keynesian Perspective," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 61(1), pages 21-38, Februar.
    6. repec:ilo:ilowps:484519 is not listed on IDEAS

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    More about this item

    Keywords

    fiscal policy; government deficits and debt; debt brake; fiscal compact; Germany; Euro area;
    All these keywords.

    JEL classification:

    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E64 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Incomes Policy; Price Policy
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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