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News : EU Economy Last Updated: Sep 11, 2014 - 9:35 AM

Germany targets 2015 budget surplus; May support euro investment plan
By Michael Hennigan, Finfacts founder and editor
Sep 10, 2014 - 5:21 AM

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Germany is targeting the first planned annual budget surplus in forty-five years for 2015 while a Franco-German investment plan for euro area investments valued at €300bn and financed by lending from the European Investment Bank, is reported to be in the works.

Deutsche Welle reports that Wolfgang Schäuble's first budget proposal for 2015 foresees total federal spending just shy of €300bn - - a figure below predicted government revenues. It's Germany's first budget since 1969 that does not forecast any need for new sovereign debts. Thanks to rising tax revenues and rock-bottom interest rates, Germany now also expects a budget surplus for 2014, but this was not initially predicted.

Dr. Schäuble, Germany's finance minister, told the Bundestag on Tuesday that calls “for the use of more and more public money and the acceptance of higher deficits and debts is leading us astray.”

“Growth and jobs don’t come about via higher deficits as if that were the case we [in Europe] really wouldn’t have any problems at the moment,” he added. “Only innovation, structural reforms, investment and reliable [investment] conditions and, above all, trust in the sustainability [of public finances] will help.”

The finance minister said federal budgets without new borrowing to 2015, from next year, become the norm. "We have promised before the election, we have agreed to it after the election, and now we realize it."

"The 'black zero' is not an end in itself, but it stands for reliability; it is sure that we deliver what we have promised. The only way we can maintain confidence in the business location Germany. We have had to laboriously work out again this trust in the last few years. Finally, the global financial and economic crisis has also set Germany economically back. It has already been forgotten that in 2009 we had a decrease in our domestic income of about 5%. The 2015 federal budget and the budget until 2018 stand for reliability. This reliability is elementary for investors as for consumers. Our policy is for stability, especially in a period of economic and political tensions because of military conflicts in the Ukraine and in the Middle East."

The Handelsblatt newspaper reports that Alfred Boss, an economist at the Kiel economics institute says that without additional austerity measures in Budget 2015 there will be a  deficit of about €3.5bn.

Deutsche Welle reports that Peter Bofinger, one of the German government's special panel of economic "wise men," criticised Schäuble's debt-free spending plans. He told the Saarbrücker Zeitung that the "black zero" sought by Berlin "suggests zero competence" in economic policy.

"Even while sticking to the 'debt brake' now within Germany's Basic Law, the state could have invested an extra €10bn per year," Bofinger said. German law was recently changed to incorporate a limit to annual government debt intake; the country's national debt stands at over €2.1tn, around two-thirds of annual GDP.

DW says that according to a report in Tuesday's Passauer Neue Presse newspaper, Schäuble is also planning to abolish Germany's so-called "solidarity surcharge" (Solidaritätszuschlag in German), but to counterbalance this with additional direct taxation. The Solidaritätszuschlag, or "Soli" in common parlance, was introduced in 1991 - primarily labeled as a tax to cover the costs of development in former Communist East Germany after reunification.

Meanwhile, Bloomberg News reports that Germany and France are poised to take the first step toward a European investment program, as the euro area’s two biggest economies seek to resolve differences and spur growth without resorting to stimulus spending, government officials said.

The proposals, which depend on the European Investment Bank providing loans to companies, aim to underpin a €300bn investment plan outlined in July, according to three euro-area government officials who asked not to be named because the document is in draft form. "Germany and France plan to present the initiative at a meeting of European finance ministers in Milan, Italy on September 12."

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