A paper by the Bruegel think-tank, distributed at Washington, D.C’s annual spring IMF meeting this week, warns that the German spending orgy could (1) be endangered by European Union fiscal rules; and (2) could induce other countries to follow the example and multiply spending, thus undermining the stability of the EU.
German government debt will jump from the current 63% to 90% of GDP, violating the new rules of the stability pact that were introduced last year—which rules had been advocated for, in particular, based on Germany’s hawkish fiscal approach. Now Germany has overturned the table, to the dismay of France, Italy, and Spain, which had called for more flexible rules. Those rules do admit exceptions, but only if there is guarantee of adequate growth perspectives—which Germany does not have.
