In an attempt to try to divert a looming economic stagnation in the European Union, some leading German and French economists have launched some plans to try to revive the economy of the Eurozone by tackling two issues which might have deteriorated the economic situation in the currency bloc.
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Enderlein, an associate at a German school of Governance and Pisani, member of a French think thank have announced some ideas focusing on solving the issue of the rigid French labor market and the lack of government spending on infrastructure projects in Germany. This could be the perfect time to push some of these ideas through as the next elections in both countries are still 2.5 years away which means there’s plenty of time to implement new measures and restoring the popularity of the politicians before the next elections.
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The interesting part is that both Ministers of Economy of both countries are agreeing that something needs to be done which is relatively easy to implement without disturbing the labor market or the public finances too much. However, the German minister of Economy has stated that Germany is unwilling to increase its budget for infrastructure works. He states that a total amount of 10B EUR has been included in the 2015-2017 budget which will be used to fund infrastructure and construction activities, but that it’ll be close to impossible to increase this amount to 24B EUR. That’s interesting because if Germany would borrow an additional 14B EUR at a term of 10 years, its annual interest payment would be just 178M EUR per year as the 10 year government bond rate has been declining for six years now (see next image).
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That’s a surprising statement as several economists would have thought the proposed 10B EUR to be insufficient for the necessary upgrade works anyway, and it looks like Germany is once again playing it hard. As the Minister of Economy said that the real problem in Germany is the lack of private investment, we wouldn’t be surprised if he was trying to put some pressure on those private parties in the German system.
