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IMF advocates exceptions to the German debt brake

In the middle of the exploratory talks in Berlin on the formation of a traffic light coalition, the International Monetary Fund (IMF) is calling for a flexible approach to debt rules in Germany and Europe.

Washington - A premature austerity policy would "damage the economic recovery," said IMF chief economist Gita Gopinath to the Handelsblatt. Germany should therefore apply the debt brake flexibly. "Investments in green technologies and digitization are essential to create sustainable growth," said Gopinath.

"If higher investments are necessary, Germany should make an exception to the debt brake." It is also important at EU level to show flexibility. The EU must adapt the Stability and Growth Pact to a changed macroeconomic reality, demanded Gopinath.

"It needs reform," she said. Until the EU states have agreed on this, it is important "to allow slower budget consolidation". The EU Commission wants to begin next week with public consultations on a reform of the so-called Maastricht criteria, according to which the budget deficit must not exceed three percent and the total debt must not exceed 60 percent of economic power.

Only a few EU countries currently comply with these rules. "Because of the pandemic, countries have accumulated large debts," Gopinath emphasized. "Forcing governments to reduce this debt very quickly in order to comply with the old rules would be counterproductive."

In addition, the IMF chief economist spoke out in favor of "reducing the tax burden on lower incomes" in Germany. In view of the high energy prices, Gopinath recommends income support for low wage earners. The current high inflation will fall again in the coming year, according to the expectation of the IMF. "For the euro zone, we are forecasting an inflation rate in the medium term that is below the two percent target set by the European Central Bank," said Gopinath.

Photo: Reuters.
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