Bundesbank Says Merkel Must Cut Debt to Retain Market Trust

Chancellor Angela Merkel musn’t relax Germany’s budget discipline if the country is to keep the confidence of financial markets, the Bundesbank said.

Germany’s plan to cut back its debt mountain to below 60 percent of gross domestic product from 81 percent will take “many years” to achieve and is being compromised by looser spending, the Frankfurt-based central bank said today in its monthly report.

Merkel must tackle a “speedy reduction” of budget outlays, the Bundesbank said. “Doing that would counter the risk of the debt burden growing and losing trust in the sustainability of German public finances.” Germany faces growing demographic problems, it said in the report.

Merkel is counting on economic and tax revenue growth this year and in 2012 to push the national deficit down to one percent of GDP. At the same time, the chancellor is not keeping her pledge to rein in the country’s spending next year, the bank said.

Merkel will keep several economic stimulus programs rolling in 2012 and has promised tax cuts, the Bundesbank said.

To contact the reporter on this story: Brian Parkin in Berlin at bparkin@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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