Challenges the German Economy Is Facing Under the Current Government

Because:
1.A high deficit causes a rise in interest rates, thus leads to a decrease in invest-ments due to the higher cost for these investments.
2.Not to neglect the fact of Germanys credibility in the Euro-zone and the willingness of foreign investors to be active in Germany.
3.The influence on the exchange rate with an appreciation of the Euro is not immedi-ate, but a constant higher running deficit could have a negative impact on the Euro exchange rates, thus making Germany less competitive internationally, leading to a reduction of net exports. Again negatively influencing aggregate demand and em-ployment.
4.The proposed measures are in part very unpopular, especially with the base of Schröder's Socialist Party members. This political controversy could have a major impact. Either on the efficiency and implementation of certain measures or on the program in whole
The graph below depicts possible scenarios of dept financing.
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