Pandemic Made World Governments Loosen Purse Strings, Does Their Generosity Have Limits?

The Covid-19 pandemic has triggered an unprecedented crisis around the world, even more severe than the financial and economic crisis of 2008. This has led governments to act vigorously since spring 2020 to mitigate the effects.

This year, the economic horizon remains in the clouds and most countries have announced new incentives or an extension of programmes already in action to support business and households, BTA writes.

Europe's largest economy announced at the beginning of the month an extension of tax breaks worth over €11 billion. The generosity of the German state, which just a year ago kept its bills always "on the green," is dictated by the need for new stimulus for the economy because retail outlets and other businesses remain closed.

Germany must for a long time repeal the rule of not allowing government debt in order not to impede recovery after the Covid-19 pandemic. That's what Chancellor Angela Merkel's chief of staff, Helge Brown, insisted on at the end of January.

A sustained refusal to reduce deficits is a "strategic solution for economic revival," and it also provides a reliable framework for investment, Brown added. This will allow social deductions and taxes not to be raised until the end of 2023, according to the expert from Merkel's close circle.

The government debt rule, enshrined in Germany's constitution, prohibits the federal government from borrowing more than 0.35 percent of the country's gross domestic product (GDP) in normal times.

In exceptional circumstances, such as the current ones, the government may ask the Chamber of Deputies for permission to exceed this threshold. This is exactly what happened in June last year, when the country began implementing a €130 billion plan to invest in...