Germany to take on significantly less debt than projected

Discussion in 'Wall St. News' started by ASusilovic, Jun 22, 2010.

  1. The German federal government won’t have to take on nearly as much debt in this year as previously feared, a media report said on Tuesday.

    Government coalition sources told daily Süddeutsche Zeitung that they plan to stick with their record austerity plan, but thanks to unexpectedly higher tax revenue, lower labour market costs and the proceeds of mobile phone licenses, the 2010 deficit will be up to €20 billion less than thought, the paper said.

    The budget deficit for this year is now expected to be between €60 and €65 billion, while the situation in 2011 could see debt of €55 billion – compared to previous projections of almost €72 billion.

    The surprising budgetary development has reduced the savings pressure on Chancellor Angela Merkel’s conservative Christian Democrats and their junior coalition partners the pro-business Free Democrats, but only a bit, the paper said. A new debt limit set into German basic law means the Finance Ministry must still bring debt down to €8.5 billion by 2016.

    Theoretically the centre-right coalition could avoid some of the controversial savings measures planned for next year, but budgetary spokesperson for the CDU, Norbert Barthle, rejected the idea.

    “It is right that the cabinet wants to begin with the savings already in 2011,” he told the paper. “It would be a fatal signal if, in the first year that the debt limit takes hold, we were to avoid it only because the situation was a bit better than expected.”

    Instead Barthle encouraged coalition leaders to put the increased tax revenue towards lowering new debt, the paper said.