* We all go down…
The economic outlook for Germany is bright. Optimism among investors abounds, and unemployment is at a record low. Policymakers now have a unique opportunity to address the challenges facing the German economy.
These are varied but include boosting wages, investing in infrastructure, and reducing the large trade surplus. As the largest economy of the euro area, Germany also has a stake in fostering reforms in the monetary union. Successfully rising to these challenges is critical for Germany and for the euro area as a whole.
To delve more deeply into these pressing debates, the IMF and the Deutsche Bundesbank are tomorrow (January 18) hosting a conference entitled “ Germany—Current Economic Policy Debates .” By meeting in Frankfurt to discuss these issues, policymakers and other participants have the opportunity to drill down on the key issues affecting the German economy and discuss ways of addressing them. For the IMF’s part, we see room for constructive dialogue on several fronts, discussed in our latest report on the German economy .
Maybe the answer is a bit of both, but we at the IMF see a particularly strong case to use head room in the budget (including beyond the “black zero”, namely the balanced federal budget) to invest more in public infrastructure, such as roads, railways, and digital infrastructure. We have also advised the government to spend more on reforms that help women go back to work, such as opening more childcare centers and kindergartens. Our view is that higher growth in the long term will improve prosperity, helping to offset the costs of an aging society.
Germany has a bright economic outlook, and the good news is that this is now also the case for the euro area as a whole. In our latest report , we project strong growth in the 19-member group over the next couple of years. But this growth can only be assured if essential elements of the euro area’s economic architecture are put in place. For that, the support of Germany—the euro area’s largest economy—is essential. I welcome that the preliminary coalition agreement correctly recognizes the centrality of these issues.
That is why we have called on euro area members to complete the banking union with greater risk sharing. It is why we have urged them to build a central fiscal capacity to provide a cushion in bad times. And it is why we have advocated for advancement of the capital markets union, so as to add a layer of private cross-border risk sharing.
For this to be politically as well as economically possible, countries with high debt levels should rebuild their budgetary buffers. And all countries should put in place policies to increase productivity, which has largely stagnated since the end of the global financial crisis. Those are key elements of an economically stable and growing Europe.
As we have been saying in recent months about the global economy, “The time to repair the roof is when the sun is shining.” For Germany and for the euro area, the dawn has broken and the sun is today shining brighter than it has for quite some time. That’s very welcome news—let’s make the most of it by repairing the roof.
* The publication is not an editorial. It reflects solely the point of view and argumentation of the author. The publication is presented in the presentation. Start in the previous issue. The original is available at: imf.org
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