German finance minister: times of expansive fiscal policies are over

Fiscal tightening would be necessary to fight inflation, said Finance Minister Christian Lindner following the recent reports of the International Monetary Fund (IMF) and the EU Commission, which indicated that Germany will continue to be plagued by high inflation.

On Monday, the Commission published its spring forecasts, warning governments to remain weary as core inflation has proven sticky. The IMF followed suit on Tuesday, with its report echoing the Commission’s comments on the matter of core inflation in Germany while recommending “moderately tight” fiscal policies.

“Inflation has to be tackled. To that end, monetary policy and the government’s fiscal policy have to work hand in hand,” Lindner stated in response to the reports.

“The times of extensive, expansive fiscal policies are therefore coming to an end. That’s an important recommendation for our national budgetary policy,” he told journalists ahead of the meeting of EU finance ministers in Brussels.

Lindner also reiterated his intention to return to the constraints of Germany’s debt brake, a constitutional provision that limits the structural budget deficit to 0.35% of GDP. It had previously been suspended in the face of economic challenges following the COVID-19 pandemic and the war in Ukraine.

However, the IMF report has taken a more sceptical position towards the debt brake and advocated for adjusting the rules to allow for more flexibility when it comes to Germany’s spending needs. The report reads that the government would need more leeway for public investment as it will presumably be grappling with a slow economic recovery.

The Commission’s projections see German GDP growth among the lowest in the European Union for 2023, at 0.2%.

A return to the debt brake is part of the coalition agreement of Germany’s government. Nevertheless, the coalition has been squabbling about the details, as the Greens have expressed concerns about insufficient room for fiscal projects.

“Now is the time for smart, prescient financial policies and not for holding on to old, impractical rules,” Rasmus Andresen, a Green MEP and member of the parliament’s Committee on Economic and Monetary Affairs, said in response to the IMF report.

(Nick Alipour | EURACTIV.de)