MNI BRIEF: Germany Facing EU Fiscal Rule Challenge - IWH Study

Germany will need  “very substantial” public spending cuts if it is to comply with EU fiscal rules, with the debt-to-GDP ratio currently set to reach 93% by 2040, according to a study by the Halle Institute for Economic Research (IWH).  

Savings of EUR130 billion are expected by 2029, yet demographic trends, subdued investment and weak productivity growth mean potential economic output is lower than in previous years, with negative implications for the state purse, IWH said. (See MNI INTERVIEW: German China Plan Likely To Fail - Holtemoeller)

Compliance with EU fiscal rules is assumed in the federal government's fiscal-structural plan, but can only be achieved if additional major savings are made, the report stated.

“If fiscal policy remains unchanged, persistently high deficits and a further increase in debt levels are to be expected,” IWH’s Oliver Holtemoeller said. “The projections underscore the need to combine the currently expansionary orientation of fiscal policy with a sustainable medium‑term consolidation strategy.”