Austerity and Its Effects on Investments, Consumption, and Wages: An Analysis of Germany (2010–2014)

Abstract This paper investigates the economic impact of austerity measures in Germany during Angela Merkel's chancellorship from 2010 to 2014, focusing on their effects on public expenditures, investments, and consumption patterns. Austerity policies, implemented in response to fiscal imbalances following the global financial and Eurozone debt crises, aimed to restore economic stability. However, the contractionary effects of these measures on growth and employment have been widely debated. This study addresses a key gap in the literature by examining how austerity affected investment volatility and wage dynamics in Germany. Using an econometric model that incorporates long-memory processes and fractional integration, the paper explores the relationship between public expenditures, shrinking consumption, and wage support, and considers the role of debt financing in maintaining economic balance. The findings offer a detailed understanding of the long-term economic consequences of austerity policies, contributing to the broader discussion on fiscal consolidation and economic recovery. JEL Classification. E62, H63, H68, C58, G32