|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."
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
“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
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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