Germany's Top Economist Warns of Gulf Conflict Price Shock Crisis
Duisburg Germany's top economic adviser Achim Truger has called for a macroeconomic response to the looming price shock triggered by the Gulf conflict. "The current situation risks plunging the global economy into a new crisis," he warns in an article for Surplus magazine. "Policymakers in Germany and the EU must now prepare coordinated macroeconomic crisis measures."
Among other steps, Truger urges suspending debt brake rules and introducing price caps. "Regulation should be designed to prevent excessive price hikes at the pump and across the entire supply chain," he argues. "Reactivating smartly structured price brakes for gas, oil, and electricity—while preserving incentives for conservation and subsidizing only basic consumption—should be readied for households and industry alike." In such a scenario, he adds, fiscal policy must be prepared to invoke the debt brake's emergency clause to fund "targeted, time-limited support measures."
A joint effort by the government and social partners would be essential to prevent a sharp inflation surge from spiraling into a wage-price cycle. "As after the Ukraine price shock, tools like a temporary, tax- and social-security-free inflation compensation bonus could be deployed to encourage one-off payments," Truger explains. "At the EU level, as during the coronavirus pandemic, support mechanisms must be established for member states lacking the fiscal firepower to combat the crisis on their own. If such a comprehensive package were implemented, the European Central Bank could avoid unnecessary interest rate hikes that would further strangle the economy."
