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News : Irish Economy Last Updated: Mar 14, 2013 - 4:25 AM

Germany in audacious move to cut net borrowing in 2014 to 40-year low
By Finfacts Team
Mar 14, 2013 - 4:17 AM

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Philip Rösler, vice chancellor, and Wolfgang Schäuble, finance minister, in Berlin, March 13, 2013

Germany in an audacious move announced on Wednesday that it is to cut net borrowing in 2014 to a 40-year low. In advance of an EU summit on growth that opens today, Wolfgang Schäuble, finance minister, said the cut in spending in 2014 to below the level of 2010 was part of a budget plan that is a "growth friendly deficit reduction."

New federal borrowing in 2014 will be €6.4bn, according to the plan - -  down from  €17.1bn this year. Without a contribution of €4.3bn for Europe's bailout fund, the European Stability Mechanism, Germany would have come close to a balanced budget in 2014, Schäuble said. Instead, Germany will achieve a balanced budget - -requiring no new debt - - in 2015.

"With all modesty, this is a result of historic proportion," Philip Rösler, the Vietnamese-born vice chancellor, told reporters in Berlin. "The lesson from the sovereign debt crisis is that solid finances are essential."

Federal spending will be reduced by €5.1bn from 2013 to 2014, while government income from taxes and other sources will rise €5.6bn during the same period.

“This is absolutely necessary,” says Jörg Krämer, chief economist at the bailed-out Commerzbank, according to the FT. “We are in the midst of a sovereign debt crisis. Germany was the one who told the others to implement debt brakes. It would be a catastrophic signal if Germany were to abolish its own debt brake.”

Germany achieved a 0.1% of GDP (gross domestic product) budget surplus for all branches of government in 2012 - - Germany’s first balanced budget since 2007.

The current budget plan assumes a budget surplus in 2015, and Germany's constitutional Schuldenbremse (debt brake) of 2009 provides that the federal government must cut its structural deficit (ie, adjusted for  the business cycle) to 0.35% of GDP by 2016; the 16 Länder (states) must eliminate theirs entirely by 2020. The idea is to slash public debt as a ratio of GDP from a gross level of an expected 76% in 2016.

German GDP grew by 0.7% in 2012 and is forecast by the economics ministry to grow by 0.3% in 2013 and 1.6% in 2014.

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