The role of fiscal policy in the face of rising prices is being investigated by the "Handelsblatt" newspaper, which asked economists what fiscal policy can achieve. "Historically, government debt and budget deficits are closely related to inflation," explained Volker Wieland in an interview with "Handelsblatt." He points out that since the beginning of the Corona pandemic, the European Central Bank (ECB) has been buying bonds from member states in the amount of new debt.
The money supply growth is higher than it has been since before the financial crisis, he said, mainly because of the growth of public credit. He therefore calls for an exit plan.
Wieland goes on to explain that the German government cannot directly influence inflation trends. But it must comply with debt rules, he adds. "A permanent suspension of national and European debt rules, just like capacity bottlenecks in the private sector, drives prices up in a phase of recovery."
Handelsblatt: "Warum die Bundesregierung kaum Einfluss auf die Inflation hat" (€)