context - Mounting signs of economic stagnation in Germany and elsewhere in Europe are prompting a debate within the German government about how it might support growth without diluting its insistence on fiscal rectitude. German officials have begun discussions about business-friendly measures and a limited boost to public spending to help spur consumer demand and company investments. But the possible moves fall far short of demands for a major increase in German public investment that other European capitals, the European Central Bank and the International Monetary Fund are pushing for. The debate in Berlin shows that Chancellor Angela Merkel's ruling coalition is starting to fret about signs that growth in Europe's biggest economy is grinding to a halt. An array of recent economic data suggest the faltering eurozone recovery, slowing growth in German exports to emerging economies and geopolitical tensions, particularly over the conflict in Ukraine, are weighing on German business investment and other economic activity. But no German stimulus program is expected soon, given the reluctance of Ms. Merkel's coalition to pull its focus away from balancing the budget. German policy makers are typically averse to fighting downturns with public spending unless a sharp recession is loomingwhich doesn't appear the case. Around Europe, frustration has been growing with Germany over its lack of policy efforts to lift growth in the region's biggest economy, which could help buoy other parts of the eurozone. Many policy makers in other capitals complain that the political priority given to a balanced budget in Berlin has squeezed public investment in recent years, even though European deficit rules would allow Germany greater leeway to boost spending than it is using. "The current weakness in the German economy is probably not bad enough to justify a complete U-turn by Berlin," Dirk Schumacher, senior European economist at Goldman Sachs in Frankfurt, said. "But looking at it in context of the euro area, the German government should have a big interest in supporting growth in Italy and France via stronger German domestic demand." After contracting in the second quarter, German economic activity is expected to grow in the second half of this year, but only at an anemic rate of well below 1% on an annualized basistoo little to help the stalled eurozone recovery. The IMF said Tuesday that the eurozone faces a one-in-three risk of sliding back into recession in the next six months. Leaders of Ms. Merkel's three-party coalition met on Tuesday night to discuss ways to "secure the future competitiveness of the German economy" amid the recent economic headwinds, said Steffen Seibert, Ms. Merkel's spokesman, after the meeting. Coalition officials say the government was focusing on measures to encourage domestic demand and, in particular, German business investment, which has failed to take off from depressed levels, as it normally would in an economic recovery. Officials say growth-boosting ideas currently on the table include using the proceeds from next year's auctions of mobile-phone frequencies to subsidize investment in a new fastspeed Internet network. The government is also considering a 3 billion ($3.8 billion) cut in payroll taxes and legal incentives to encourage cash-hoarding German companies to invest more. The discussions come after Jrg Asmussen, German deputy labor minister and a former top ECB official, and current ECB executive-board member Benot Coeur called in an article for tax cuts in Germany as a way to support eurozone growth. The German economics ministry, though, said it isn't developing any stimulus program. "There would be no reason to do so," the ministry said in a statement on Wednesday. The German government, as well as the business establishment also insist the country should stick to its balanced-budget goal. "At the moment, the government is still waiting to see how much worse things get, rather than acting before things get worse," said Marcel Fratzscher, head of the DIW, a nonpartisan economics think tank in Berlin. Mr. Fratzscher said he increasingly views the government's goal of a balanced budget as unsustainable, given the gathering economic storm clouds. In recent years, deep public-spending cuts in debtor countries such as Spain and Italy haven't been matched by stronger spending in Germany and other countries that can borrow cheaply. Critics say this asymmetry has left the eurozone overall with a too-tight fiscal policy for the weak state of its economy. So far, eurozone governments have left the job of stimulating demand to the ECB. But with interest rates near zero and large-scale asset purchases facing political opposition especially in Germanythe central bank is approaching the limits of what it can do. ECB President all but admitted last month that the central bank alone can't lift growth if fiscal policy is too tight. He strongly hinted that Germany and other creditor countries can afford to spend more. "It may be useful to have a discussion on the overall fiscal stance of the euro area with the view to raising public investment where there is fiscal space to do so," he said. Berlin has argued that the eurozone's malaise can only be fixed through overhauls of labor markets and other economic arrangements within the struggling national economies of Southern Europe. But a string of poor German economic data lately suggests its neighbors' travails are catching up with the Continent's powerhouse.

question -

3. The article refers to two tools the ECB has available to stimulate demand: interest rates changes and assets purchases.

- Discuss the mechanism by which these two tools ultimately stimulate demand.

- Based on the level of interest rates, what stage of the cycle we are most likely based on Ray Dalio's framework?