The rationale behind German fiscal policy

Henrik Enderlein, the director of Jacques Delors Institut – Berlin, gave a talk on the political and macroeconomic rationale behind German fiscal policy at the conference of the Centre for European Reform in Ditchley Park.

German efforts to reduce spending have drawn criticism from a number of economists because of its effects on growth in Europe. However, there is another side to the story. In his presentation, Enderlein showed that in the long run, Germany faces increasing challenges due to an unfavourable demography resulting in stagnating tax revenue and increasing expenditure. Prioritising debt reduction could constitute a rational response to these risks. At the same time, he recommended measures to mitigate the risks arising from demographic change, e.g. by increasing female participation in the workforce or facilitating migration.