Home Finance IMF Chief economists backs exemptions to German debt brake

IMF Chief economists backs exemptions to German debt brake

Germany should apply its debt brake more flexibly and suspend it again if needed to favour investment. The International Monetary Fund’s chief economist told business daily Handelsblatt that, this is particularly in green technologies and digitalization. The IMF’s Gita Gopinath told Handelsblatt in an interview that the investments in green technologies and digitalisation are essential to create sustainable growth. She added that if higher investments are necessary, Germany should make an exception to the debt brake for this.

Chancellor Angela Merkel’s government has financed unprecedented rescue and stimulus measures during the pandemic in Europe. This is with record new borrowing of 130 billion euros in 2020 and 240 billion euros in 2021. Finance Minister Olaf Scholz, the Social Democrat now in talks to lead a new government following the Sept. 26 election. He has proposed suspending the debt brake for a third year in 2022. From 2023 onwards, Scholz wants to consolidate public finances and return to the debt brake rule that would limit new borrowing to 0.35% of economic output.

Gopinath said that the European Union should also adapt the budget rules. She said that it needs reform. And added that until EU states have agreed on this, it is important to allow slower budget consolidation. The IMF expected inflation in Germany. This rose to 4.1% in September. Gopinath added that for the euro zone, they predict an inflation rate in the medium term that is below the European Central Bank‘s two percent target.

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