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Divergent public finance strategies in Germany and the other euro-zone countries: Who is right?
T he simplif ication can be made that: Germany’s strategy consists in sharply and rapidly reducing its public debt ratio by maintaining a fiscal surplus; The strategy of France, Spain and Italy consists in just about stabilising the public debt ratio at the current high level thanks to a slightly smaller fiscal deficit than that which would strictly stabilise the public debt ratio. Who is right? There are two key questions: Will Germany’s strategy lead to an insufficient level of public spending for some important items or to an excessive level of taxes that affect employment and growth? Germany’s low level of public investment is open to criticism; the low level of public spending on pensions and education does not seem to be having negative effects; no taxes are abnormally high; Is there a risk of interest rates rising sufficiently in the future so as to endanger fiscal solvency in the countries with high public debt ratios? France, Spain and Italy could be in danger if long-term interest rates rose by around 100 basis points.
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Natixis
Based across the world’s leading financial centers, Natixis CIB Research offers an integrated view of the markets. The team provides support to inform Natixis clients’ investment and hedging decisions across all asset classes.
Patrick Artus
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