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ViewpointJanuary 3 2017

Ludger Schuknecht: Fiscal normality must be the focus

The risks of blind fiscal expansion to generate growth are too great. The priority should fall upon fiscal consolidation and improving the quality of public finances instead.
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We live in exceptional times. The global economy continues to operate under ultra-loose monetary policies in advanced economies, yet investment dynamics remain moderate, labour productivity growth low and medium-term economic prospects modest.

The International Monetary Fund (IMF) proclaims this state to be the “new normal” and recommends a new dose of fiscal stimulus. This approach is based on the old idea of macroeconomic fine-tuning and debt-driven growth.

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