Germany Plans to Cut Spending, Borrowing in Bid to Erase Deficit

Germany plans to cut spending and borrowing next year as forecasts show growth in Europe’s biggest economy will exceed current estimates.

Finance Minister Wolfgang Schaeuble today unveiled a 2013 draft budget, saying his spending plans will balance measures to foster growth with the government pledge to cut its deficit.

“The capacity to cut the deficit steadily presumes economic growth,” Schaeuble said. The blueprint “embodies policies that will foster economic growth and our commitments to cut debt.” German government spending will rise in 2014 by 1 percent and by 1.5 percent in 2015, the draft shows.

The government in Berlin plans to cut its net borrowing next year to 19.6 billion euros ($26 billion) from a planned 24.9 billion euros and from 34.8 billion euros expected this year, Schaeuble said at a press conference in Berlin. Overall spending will drop to 300.7 billion euros or 3.8 percent less than last year, said the Christian Democrat.

The German economy may grow faster this year than the 0.7 percent expansion on which Schaeuble bases his deficit forecast, the RWI-Essen economic institute said today, citing the outlook for exports and domestic demand. The economy may grow 1 percent this year, said RWI.

Germany will achieve the goal of balancing its budget in 2014, two years earlier than stipulated in a constitutional “debt brake,” Schaeuble said. At the height of the bank crisis in 2009, Germany adopted the law committing the three levels of government to report a composite balanced budget by 2016. The euro’s rules determine that a budget is in balance if the deficit is below 0.5 percent of gross domestic product.

The structural deficit -- a measure of regular overspending on portfolios such as pensions that’s stripped of one-off or short-term factors -- will decline from 1 percent of GDP this year to 0.54 percent in 2013 and 0.26 percent in 2014, said Schaeuble.

The federal borrowing target will more than double from last year primarily as a result of two cash payments to the euro region’s permanent rescue fund, Schaeuble said. The 2013 draft budget will not be passed in parliament before December.

To contact the reporter on this story: Brian Parkin in Berlin at rbuergin1@bloomberg.net Tony Czuczka at aczuczka@bloomberg.net

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

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.