by Philipp Engler, Mathias Klein, in
DIW Economic Bulletin
The fiscal consolidation efforts of Spain, Italy, and Portugal from 2010 to 2014 did not achieve their goal of reducing the debt-to-GDP ratio in any of the three countries. This Economic Bulletin examines why the spending cuts and tax increases, at times drastic, were unsuccessful and perceptibly contributed to sending the three countries back into recession. The sharp decrease in private household debt played a key role, especially in Spain. It weakened private consumption, and subsequent reductions in public spending amplified the slowdown with negative consequences on growth and tax revenues. The austerity policy also appears to have had a negative impact on productivity, neutralizing the beneficial effects of structural reforms. Contrary to widespread opinion, the lack of structural reforms was not the key reason for the austerity policy’s failure. The goal of reducing the debt-to-GDP ratio can only be achieved with a balanced policy mix of structural reforms, mild austerity measures, and if possible, budget reallocation in favor of investment.
by Pao-Yu Oei, Hanna Brauers, Claudia Kemfert, Christian von Hischhausen, Dorothea Schäfer, Sophie Schmalz, in
DIW Economic Bulletin
According to the German federal government’s climate protection targets, there will be a continuous reduction of lignite-based electricity well before 2030. Simulations show that the currently authorized lignite mines in eastern Germany would not be fully depleted if the climate protection targets for 2030 were complied with. This makes planning for new mines or the expansion of existing ones superfluous. For the planning security of all the actors involved, policy makers should bindingly exclude permits for additional surface mines. In terms of the follow-up costs of lignite mining, the issue is whether or not the companies’ provisions are high enough and insolvency-proof. In this context, the new ownership structures in the eastern German lignite industry, after Vattenfall’s sale of its lignite division to Czech Energeticky a Prumyslovy Holding (EPH), have become a matter of importance. Simulations show that only under optimistic assumptions, the current provisions of 1.5 billion euros for the Lusatian lignite region are sufficient to cover recultivation costs. However, alternative scenarios show significant shortfalls. For this reason, policy makers should work toward independent, transparent cost estimates. Additional measures should be considered as required, such as the creation of a public sector fund to permanently protect the general public against being forced to take on the costs of recultivation. This is also animportant theme for the government’s new Commission on Growth, Structural Change, and Regional Development (Kommission Wachstum, Strukturwandel und Regionalentwicklung). Individual federal states also have key roles to play in the creation of a dependable roadmap for a coal phase-out. For example, the government of Brandenburg is now in the process of revising its energy strategy for 2030 (Energiestrategie 2030).