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Germany May Introduce a Shadow Budget

Germany is usually known for its conservative approach to fiscal policy as well as for its balanced budgets. Yet Germany is now looking to introduce a second, shadow budget to allow the country to spend more and to help it grow.

The German government is looking to introduce a budget that allows it to spend more in certain sectors and help them to grow. While this move seems unnecessary, one could argue that there is mounting pressure on the German economy resulting from the possible risk of recession. 

Current Condition Of The German Economy

While we can easily list the German economy as one of the most stable economies in the world with a moderate growth rate, it is still prone to recession. According to the official stats presented by the German authorities, Germany's economy has seen a 0.1% shrinkage in the second quarter of this year.

Though this figure is negligible, it does indicate a downward trend in the financial sector of the country. As experts have suggested, Germany is less concerned about the risk of a recession and more concerned about the underdeveloped sectors of their economy, such as climate change. Germany's current growth rate is sufficient to maintain a good economy, but the country is now looking to expand its wings, attract more investments from the private sector and empower the underdeveloped sectors of its economy.

To achieve all this, Germany is now trying to introduce a shadow budget to borrow more money from private lenders and invest in underdeveloped sectors.

What Can This Shadow Budget Do For Germany?

Introducing a shadow budget would allow the German government, to spend additional money in some sectors of the economy. This shadow budget would not impact the country's balanced budget as long as the additional money was spent on projects with enough revenue to return a profit after costs. In theory, this should help the government make more money in the long run.

If Germany is successful in introducing a shadow budget it could spend more on infrastructure and climate change and still earn money. They could achieve a “balanced price” budget.

Dodging The Debt Brake

Experts have mentioned that the shadow budget could be the only short term method the German government could use to successfully dodge the “Debt Brake” law, which prevents German policymakers from intruding a budget with high deficits. Using a shadow budget seems the only short term way to dodge the debt brake law. The other option would be a full-fledged constitutional amendment, which can take a considerable amount of time to pass.

Since Germany has a huge debit surplus thanks to its balanced budget-making policies, they can afford to spend more on underdeveloped sectors. Angela Merkel (the German chancellor) has a state that, even after introducing a shadow budget, would try to balance it with the normal budget to avoid any deficits.

What Is Germany Looking To Invest In?

Germany is looking to introduce the shadow budget to invest more in infrastructure and climate change. Climate change could help the Government win additional popular support, which, in turn, would increase the government’s revenue. The German government seems more concerned about the issue of climate change rather than the risk of a recession by adopting this money borrowing method.

If everything goes to plan for Germany, they will borrow money from private lenders, fund new sectors, and earn additional revenue in the process.