IMF chief economist backs German debt brake exemptions, Handelsblatt reports

BERLIN (Reuters) – Germany should apply its debt brake more flexibly and suspend it again if necessary to encourage investment, especially in green technologies and digitization, the Fund’s chief economist said international monetary policy in the Handelsblatt business daily.

“Investments in green technologies and digitization are essential to create sustainable growth,” IMF’s Gita Gopinath told Handelsblatt in an interview released as the IMF and World Bank held their fall meetings.

“If larger investments are needed, Germany should make an exception to the debt brake for this,” she added.

Chancellor Angela Merkel’s government has funded unprecedented bailout and stimulus measures during the COVID-19 pandemic in Europe’s largest economy with new record borrowing of € 130 billion in 2020 and € 240 billion euros in 2021.

Finance Minister Olaf Scholz, the Social Democrat currently in talks to lead a new government after the September 26 election, has proposed to suspend the debt brake for a third year in 2022 to allow for an additional borrowing of nearly 100 billion euros.

From 2023, Scholz wants to consolidate public finances and return to the debt brake rule which would limit new loans to 0.35% of economic output.

Gopinath said the European Union should also adapt the fiscal rules enshrined in its Stability and Growth Pact.

“It needs reform,” she said, adding that until EU states agree on this, it is important to “allow more fiscal consolidation. slow “.

The IMF expects inflation in Germany, which hit 4.1% in September, to slow next year. Gopinath added: “For the eurozone, we expect inflation in the medium term to be lower than the European Central Bank’s 2% target.

(Written by Paul Carrel; edited by Paul Simao)

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