Germany set to achieve balanced budget this year

AP News
Posted: Dec 03, 2012 10:02 AM

BERLIN (AP) — Germany will achieve a balanced budget across all layers of government this year thanks to a resilient economy, low unemployment, higher tax revenues and low borrowing costs, the Finance Ministry said Monday.

New borrowing is forecast to fall from just under 1 percent of economic output in 2011 to zero percent this year when using the European Union's official debt criteria, it said.

Still, Germany's federal, state and local governments are set to take on combined new debt of €26.5 billion ($34.4 billion) this year, slightly up over last year's €26 billion.

But under the EU's so-called Maastricht accounting rules, that new borrowing is offset by surpluses in Germany's social security system worth an estimated €16 billion, and capital payments to European financial institutions worth €10 billion.

For 2013 and 2014, the government even expects a slight budget surplus of 0.5 percent across all layers of government.

Germany, Europe's biggest economy, expects total debt this year to be 81.5 percent of its GDP of about €2.6 trillion. That debt level is forecast to shrink continuously to 73 percent by 2016 as the country aims to cut new borrowing.

Germany saw robust economic growth in 2010 and 2011. This and next year the economy is expected to grow by a meager 1 percent as Europe's ongoing debt crisis weighs down on the region's demand for German exports. Still, Germany has seen its revenues rise and spending fall as a drop in the unemployment rate to near record lows has led to lower costs for the social security system.

Germany has also benefited from significantly lower-than-expected borrowing costs as investors, who consider the country's debt to be a safe haven amid Europe's debt crisis, snap up its treasury bonds. Some investors often even accept to lose money, after taking inflation into account, by investing in German government debt.