How to spend it

Germany takes anti-debt cult a step too far

Europe's largest economy has been taken hostage by the Swabian housewife. Many Germans expect the government to act like the head of a parsimonious household that spends only as much as it earns. Finance Minister Wolfgang Schaeuble is now pushing this anti-debt cult to the next level. The 2015 budget outline boasts no new debt for the first time in 46 years - a feat that Angela Merkel's government wants to repeat in the years thereafter.

German voters across political camps love it. Hardly anybody realises the country is missing an opportunity offered by the current economic environment. International investors' craving for German debt has driven down Bund yields to historic lows - less than 1.6 per cent for 10-year bonds. Annual inflation of around 1.8 per cent means Germany can borrow at negative real interest rates.

Finding rational use for cheap money would be an easy task. Over the last two decades, Germany has neglected its public infrastructure. Autobahns are clogged, local roads dotted with potholes, and ageing bridges increasingly unsafe. Underfunded universities are trailing world-class rivals, and schools are leaving behind children from poor families. The push for renewable power requires billions of investment in the electrical grid. Analysts reckon public investment has to rise by euro 7.2 billion per year for two decades. Higher investment would benefit not just Germany but the whole euro area. Stronger domestic demand would spur imports and accelerate the currency union's economic rebalancing.

Policymakers in Berlin may retort that there is never a perfect time for fiscal consolidation, and the trend of rising public debt has to be broken nonetheless. But this plea for prudence rings hollow as Merkel's coalition is handing out a lavish increase of pension perks, which comes at a price tag of at least euro 160 billion over 15 years.

At 78.5 per cent of GDP, Germany's public debt stands way above the Stability and Growth Pact's theoretical ceiling of 60 per cent. Moreover, nominal GDP growth of above three per cent this year and the next will lower the debt burden anyway. And, there is not a glimmer of evidence it is doing actual economic harm. It's time for the Swabian housewife to learn about the world.