Germany To Take On No New Debt From 2015

Germany on Wednesday presented a budget that would allow the federal government to reach a structurally balanced budget in 2014, a year earlier than expected.

Germany on Wednesday presented a budget that would allow the federal government to reach a structurally balanced budget in 2014, a year earlier than expected.

According to figures presented by German finance minister Wolfgang Schauble on Wednesday, new net borrowing would sink to 6.4 billion euros in 2014, its lowest level in 40 years, and Germany’s structural deficit – adjusted for swings in the economic cycle and contributions to the eurozone’s bailout facility – would be totally eliminated in 2014, a year earlier than required under the “debt brake” written into its constitution.

In 2015, 2016 and 2017, the books would be balanced entirely, according to the draft budget, with no new borrowing required by Europe’s largest economy.

[quote] The budget, deliberately published a week before planned and a day before the EU growth summit, is a “strong signal for Europe”, said Schauble, and proves to the rest of the eurozone that “consistent sustainable budgeting and growth are not mutually exclusive.” [/quote]

In stark contrast, French president Francois Hollande on Tuesday admitted that his socialist government is set to miss its 2013 budget deficit target by a significant margin. At the EU summit later this week, he is expected to negotiate for a relaxation of tough budget guidelines laid down in the eurozone’s growth and stability pact.

The German economy has benefited from labour market reforms introduced a decade ago that have helped pushed the unemployment rate down to its lowest level since reunification in 1990. Outside of Germany, however, the eurozone crisis has had a devastating impact, with 26 million people unemployed in the EU, including around one in every two young people in Greece, Spain and parts of Italy and Portugal.

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Co-presenting the budget, German economy minister Phillip Roesler said:

[quote] With all modesty, this is a result of historic proportions. The lesson from the sovereign debt crisis is that solid finances are essential. Thanks to this approach Germany is in the vanguard in Europe. Our success with a policy of growth-oriented consolidation is the envy of the world. [/quote]

Germany’s federal spending has remained relatively stable at 300 billion euros since 2010 but has managed to trim its deficit sharply thanks to soaring tax revenues – linked to strong growth and record low unemployment – as well as lower than expected borrowing costs of about 4 billion euros, a sign of market confidence in German fiscal policies, said Schauble.

“We did have rising tax revenues, but we didn’t use them to increase spending,” he said. “Low interest rates are a sign of confidence in the solidity of the German government. We don’t have to apologise for this.”

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