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Should Germany spend more to stimulate the economy?

BMW employees assemble electric cars on an assembly line in LeipzigImage copyright
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BMW employees assemble electric cars on an assembly line in Leipzig

The euro zone is having a problem. Germany, the largest economy, is in or near recession.

This sparked a debate over whether Berlin would open financial taps and spend more.

Should Germany, for example, start an expenditure program for its infrastructure?

Should the government abolish the policy of balancing the budget known as siyah black zero ve and the legal restriction on borrowing called borç debt brake??

Germany's crisis on Thursday will be an indicator of the impact of the new euro zone economic growth figures, but we will have to wait two weeks for a reading of the country's own performance in the third quarter of the year.

  • Germany faces stagnation threat
  • German economy returns to negative growth

The euro area as a whole may not be in recession, but inevitably the decline in Germany affects the country's neighbors.

The question is what do policy-makers – especially the German government and the European Central Bank (ECB) – do about the situation?

The ECB has already taken steps. It has cut interest rates to very low levels (to zero for one of the key rates) and is about to restart the policy known as quantitative mobility by buying financial assets with newly created money.

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Chancellor Angela Merkel takes a cautious approach to the economy

But there are real doubts as to how effective these measures will be. Many economists think that monetary policy – what central banks are doing – has done as much as possible in the eurozone.

Many argue that governments should do more. Mario Draghi, the current president of the ECB, and his successor, Christine Lagarde, who took over this week, discussed this view.

In September, Mrs Lagarde told the European Parliament: "Some countries in the European region may use some of their finances [government spending and taxation] to improve broadband infrastructure and provide public spending to help fight the recession

He could not name the countries that could take such action, but he said that now applies to the majority. The clearest example is Germany, which has been higher than spending surplus-tax revenue in public finance since 2012.

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Gita Gopinath, IMF's chief economist, was clear at this point in the foreword of the IMF's latest World Economic Outlook.

Bir A country like Germany should use negative borrowing rates to invest in social and infrastructure capital, ”he said.

Referring to negative borrowing rates means that Germany and a number of other countries can borrow at an interest rate below zero. In fact, financial markets pay for borrowing.

Professor Peter Bofinger of the University of Würzburg and Gopinath, a former member of the council of economists of Germany, acknowledge that the country must take advantage of these sub-borrowing costs to invest in infrastructure and social housing.

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Some say Germany's transport system needs more investment

He says that net infrastructure investment is still below zero – after taking into account the wear and tear of existing infrastructure.

The idea that Germany has a problem in this area can be surprising. However, Prof Bofinger says he often sees the evidence. Traveling by train in the country is "a real adventure – whether the train will come, how many minutes and hours are delayed, whether you will get something to eat on the train".

"Transportation is in a very poor condition and is the result of inadequate investment for many years."

He says it's a "big mistake" not to take advantage of the opportunity offered by eligible borrowing costs to address some of these problems.

Tax relief for businesses?

He believes the debt brake and black zero policies make no sense. If every major government follows the policy of black zero, "the world economy results in a black hole," he says.

Currently, there are only two other G20 leading economies – Russia and South Korea – with more state budgets.

However, Prof Bofinger does not prefer to use the infrastructure program as an incentive for the flag economy in the short term. The construction sector is already working at full capacity.

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Some believe Germany is entering recession

What he prefers is more generous tax treatment to encourage commercial investment, where German economic performance is now weak.

But there are many advocates of Germany's cautious approach to managing state finances.

Clemens Fuest is the director of the IFO institute in Munich, one of the country's leading economic research organizations. He argues that Germany is not facing a serious crisis, but that there may be a technical stagnation in the sense that economic activities are reversed for two consecutive quarters.

Germany has full employment and does not require further incentives at the moment. However, if there is a sharp decline in economic activity, there will be a situation that will allow the government to increase its borrowing.

He acknowledges that the country can benefit from infrastructure improvements, but it is still better than many other European countries. The problem is that there isn't a lot of money for the projects, but there is often a delay in implementation because of the objections brought by German residents.

He argues that the debt brake was a favorable response in 2009, in times of global financial crisis, when the government's debt was higher than GDP and was a useful constraint.

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