The author is Chief European Economist at PGIM Fixed Income

When someone always gives the same answer, whatever the question, there is reason to be suspicious. Take German fiscal policy, for example. The answer after the global financial crisis? Austerity. The European sovereign debt crisis? Austerity. Russia’s invasion of Ukraine? Once again, the German finance minister’s answer seems to be: austerity.

But unlike other EU countries, Germany’s problem was not one of over-investment or excess capital. This is why austerity has only amplified the country’s underinvestment and made its economy less resilient to the latest energy shock. Giving the same answer over and over not only betrays a lack of creativity – for today’s Germany, more austerity is also the wrong path.

Successive episodes of turbulence since the global financial crisis of 2008-2009 had already derailed German gross domestic product growth. To date, the economy has still not returned to its pre-crisis trend. Even before Russia’s invasion of Ukraine in February, the pandemic exposed vulnerabilities resulting from Germany’s underinvestment. Combined with the aging of the population, this deficit has contributed to weak growth.

The Russian invasion is the latest shock to German supply and demand. The Bundesbank and the Ministry of Finance seem to believe that this blow to the economy should simply be accepted. But the tighter fiscal and monetary policies they advocate would further reduce demand.

Additionally, there are signs that Germany’s trend growth continues to decline. Stopping this “death by a thousand cuts”, where multiple crises add up to a worrying big picture, will require bold action and an overhaul of the country’s economic model.

Internationally, German austerity risks aggravating trade imbalances and straining transatlantic unity. Tensions between the West and China – a key export market for German goods – had already dampened Germany’s export-driven economy. China’s push for self-sufficiency alongside the fragmentation of the global supply chain will further test Germany’s economic model.

This is why Germany must accept the fact that trade with the EU is seven times greater than with China, and recognize that it must first invest at home and in its main trading partners. The EU is the largest and most open trading bloc in the world. But all the benefits of the union will remain untapped unless Germany assumes a leadership role.

Instead of austerity, to actively offset supply damage and mitigate the inflationary impact of war in Ukraine, German policymakers should create a positive shock.

German industry depends on cheap fossil fuels from Russia. In the worst-case scenario of a sudden halt in Russian energy flows to Germany, we estimate that the cumulative impact of inadequate policies since the Great Financial Crisis could approach a staggering 15% of German GDP.

Such a shock requires a complete overhaul of the country’s energy supply. Some will want renewables to take center stage, but complementary sources will be needed if Germany is to have secure and consistent supplies. Investing in fossil fuels and nuclear power domestically will likely be part of this picture. The conclusion is clear: the existing domestic supply will not be able to fill the German demand gap.

Instead, Germany could invest in public infrastructure, on a scale reminiscent of the Marshall Plan. In particular, investments in energy infrastructure, such as the Next Generation EU plan that Germany has supported during the pandemic, would strengthen the country’s security, accelerate its green transition and generate positive spillover effects on innovation.

Rising fiscal spending across Europe could also give further impetus to common Eurobonds. German public opinion would be less reluctant to adopt such an initiative because part of the funds would be spent at home. It would also be a step towards fiscal union in the euro area.

Self-interest also promotes investment. Given Germany’s large economy, higher domestic spending would boost the EU as a whole. In turn, the country’s deep integration into the EU economy would see these economic benefits accrue to Germany itself.

Germany has the talent and the resources for the investment we are proposing. Its leaders must present a confident vision of its future and be convinced that investing in their country will generate a good return. Yes, higher spending means more debt, but future generations will inherit the assets built by that debt. Failure to invest will lead to a permanent loss of GDP – cold comfort to any generation.