November 29, 2006
Ever since the end of the German coalition negotiation between Christian Democrats and Social Democrats in late 2005, the standard forecast for 2007 has been full of gloom. Following the increase of the standard VAT rate from 16 to 19 percent, most economists had been projecting a sharp slow-down in growth in 2007, if not an outright end of the economic recovery. Deutsche Bank even forecasted an outright fall of GDP in 2007 compared to this year. Papers in Germany were full of articles lamenting “the largest tax increase in history” with commentators claiming that the upswing would be extremely short-lived.