The German Debt Brake on Trial: Not Guilty
While periods of a negative interest rate-growth rate differential are nothing unusual in historical perspective, the discussion about its implications for fiscal policy has gained new momentum: in some developed economies nominal short- and long-term interest rates have even reached the negative range, and nominal GDP growth rates have remained relatively high. This holds in particular for Germany. Unsurprisingly, after Blanchard’s (2019) elucidation that a sustained negative interest-growth differential might facilitate accumulating additional public debt without endangering fiscal sustainability, this discussion has reached the German discourse on fiscal policy. Most importantly, advocates of higher public debt argue that this could be a panacea for overcoming Germany’s large unfulfilled investment needs.
Schmidt, C. (2020), The German Debt Brake on Trial: Not Guilty. CESifo Forum , 21, 1, 35-40