The status of fiscal deficits in OECD countries and the euro zone: From an anomaly to be corrected to a necessity to prevent deflation

In the past, fiscal deficits were considered a dangerous anomaly (given the threat of rising long-term interest rates and crowding-out effect ) that needed to be corrected as soon as possible. But we have moved to a situation of increasing excess ( ex ante ) private savings over investment; in this new environment, fiscal deficits have become a necessity (beyond being made possible by low interest rates). Without these deficits, the excess savings would lead to deflation. The very low level of real long-term interest rates probably shows that fiscal deficits are still too low. This does not mean that a reflection on the efficient use of fiscal deficits (to increase potential growth, to reduce poverty) is not needed. So we have moved from a situation where having a high fiscal deficit was a "crime" to a situation where it is an obligation.