Is it certain that the economic policy response to a recession in Germany will be good for the other euro-zone countries?
Germany is going to face lasting economic problems, given the slowdown in global trade, the problems of “old†industries and the decline in its cost competitiveness. In all likelihood , Germany is going to respond to these economic problems by shifting to a more expansionary fiscal policy. The standard refrain is that this will be good for the other euro-zone countries. But is this certain? There is reason to fear that Germany’s more expansionary fiscal policy will: Consist in increasing investment in public infrastructure and in boosting the development of new technologies and renewable energies, and that this additional public spending will mainly benefit German companies; Drive up long-term interest rates in Germany and also in the other euro-zone countries.