Governments decides strategy to jump-start the economy
In many countries, there are calls for the government to spend more to jump-start the economy and to avoid to cut back as debts mount, but Germany, has decided to cast its lot with fiscal prudence. It has managed rising growth and falling unemployment, while putting together a plan for a nearly balanced budget within six years.
Keynesians have criticized fiscal caution at this point in the economic cycle, arguing that fiscal stimulus will give economies more, not less, protection against adverse events. In Germany, the recent history of fiscal stimulus wasn’t entirely positive, after reunification in 1990, the German government borrowed and spent huge amounts of money to finance reconstruction. These policies did unify the country politically but were not overwhelmingly successful economically. Germany’s taxes remain high, and West German living standards failed to rise at the same rate as those of most other wealthy countries; in addition there are potential solvency problems in German banks, and these institutions lack transparency. Furthermore, poorer countries may need a looser monetary policy from the European Central Bank than Germany wishes to support
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