inflation on public finances in the euro area, ecb ( european central bank ) occasional paper no 2023 / 332, p. 32. 4. arslanalp, s. and b. eichengreen ( 2023 ), living with high public debt, jackson hole symposium, august 2023, p. 25. 5. international monetary fund, fiscal monitor, april 2023, p. 29. 6. international monetary fund, fiscal monitor, april 2023, p. 17. 7. international monetary fund, fiscal monitor, april 2023, p. 40. 8. deutsche bundesbank ( 2021 ), federal debt : allocate premia on accruals basis in budgetary interest expenditure, monthly report, june 2021, pp. 47 - 51. 9. deutsche bundesbank ( 2023 ), the growing significance of central government ’ s offbudget entities, monthly report, june 2023, pp. 63 - 81.

makes life more difficult for monetary policy – even if government finances are sound in and of themselves. for these two reasons, the imf ( international monetary fund ) recently recommended, quite rightly, that fiscal policy bring down deficits, many of which are very high. [ 6 ] in the current situation, this would make it possible to kill two birds with one stone. first, it would shore up confidence in the soundness of government finances. second, it would vent some of the pressure built up by high inflation, with fiscal policy nevertheless still being in a position to protect those in need. this can be done by means of targeted fiscal restraint, involving tough policy choices on what budget items to cut and which to protect or expand, as the imf ( international monetary fund ) writes. 5 german government finances as we walk, let us take a brief detour to visit the topic of german government finances. german government finances were in very good shape in 2019, directly before the outbreak of the coronavirus crisis : general government had recorded a significant surplus, and the debt ratio at the end of that year was below the 60 % reference value laid down in the maastricht treaty. since 2020, general government has been providing enterprises and households with extensive support to help them through the pandemic and the energy crisis. accordingly, it has posted substantial deficits since then, with the debt ratio climbing to almost 70 % for a time. i believe that extensive support measures in a crisis are the right response, and an important one. the specific measures taken could probably have been more precisely targeted. at the same time, particularly in such exceptional situations, urgent action is required and the pressure to act is high. but government finances are now recovering again. this has been due, in large part, to sharply rising tax revenue. moreover, covid ( coronavirus disease ) - 19 government support measures have been expiring since 2022. and from next year onwards, the volume of assistance provided in response to the energy crisis will also shrink. we at the bundesbank are therefore expecting the general government deficit to fall to around 1½ % of economic output next year. deficits of this magnitude are currently envisaged for the medium term, too. these are comparatively moderate deficits. they mean that debt will fall steadily relative to economic output. judged by that measure, then, germany ’ s current fiscal situation is sound. even compared with some other euro area countries, it does