fiscal situation in Germany

Firstly, Germany is still
experiencing a demographic respite, which means that the impact of ageing on
the economy and public finances is unlikely to be felt to the full extent before the
late 2020s resp. The early 2030s1.

Secondly, German government expenses
continue to largely benefit from the expansionary stance of the ECB and low
interest rates. We estimate that the German government saved almost EUR 260
bn in interest payments between 2008 and 2016 (c. 8% of 2016 GDP), courtesy
of declining interest rates (see charts 30 and 31). Excluding these beneficial
effects from low interest rates, the government would not have generated
surpluses in the past three years and, as a result, the debt ratio would have
been much higher at the end of 2016, marking 76.7% of GDP instead of only
68%2.

Thirdly, Germany is currently experiencing a phase of buoyant growth
resp. Scarce capacities, which puts additional cyclical tax revenues into the state
coffers. These should not be regarded as permanent. According to the
November estimate of the Working Party on Tax Revenue Estimates, German
government tax receipts could surge to around EUR 890 bn by 2022 (up from
EUR 706 bn in 2016; +26%), thanks to strong growth and the “cold progression“
in the German tax system .

If the status quo continues,
government surpluses should hence continue to balloon.