“We at the IMF see a particularly strong case to use headroom in the budget to invest more in public infrastructure, such as roads, railways, and digital infrastructure,” Lagarde wrote.
“We have also advised the government to spend more on reforms that help women go back to work, such as opening more childcare centers and kindergartens. Our view is that higher growth in the long-term will improve prosperity, helping to offset the costs of an aging society.”
Late last year, the European Commission voiced a similar view. “Those who have budgetary leeway should spend and invest more for themselves and in the interests of all,” Pierre Moscovici, the commissioner for economic affairs, said.
However, in the eyes of the Bundesbank president, it is prudent to keep a positive output gap to ensure Germany’s finances won’t be damaged when demographic pressures kick in.
According to Daniel Gros, director of the Brussels-based think-tank Center for European Policy studies, the German finances “might appear better than what they are, really.”
He told CNBC Thursday that when taking a long-term view, there are risks from an ageing population, for example. This will increase costs with pensions and healthcare and raise questions over the future stability of the labour market, he said.
“So yes, Germany got to this point (economic surplus) because fiscal policy was prudent overall, but the only way to maintain the lead is by remaining prudent,” Gros said.
