German Parliament Approves 2013 Budget Amid Risk to Deficit

Germany’s lower house of parliament passed the 2013 federal budget that the Bundesbank said may include an optimistic forecast for cutting the deficit.

The federal budget envisages spending of about 302 billion euros ($390 billion) in 2013, about 10 billion euros less than this year. Net new borrowing to fill the deficit is slated at 17.1 billion euros compared with 32.1 billion euros this year. Chancellor Angela Merkel is required to balance the budget permanently from 2016 under constitutional rules.

“Only if we show we’re following a path of stability can we be credible in recommending this for Europe,” Georg Nuesslein, economy and energy parliamentary speaker of Merkel’s Christian Union bloc, said before today’s vote. “This will give positive impulses to economic development in Germany and Europe.” The budget doesn’t require approval of the upper house, representing the states, where Merkel lacks a majority.

The plan may be based on ambitious assumptions about growth and leaves no margin for costs that may arise from stemming the debt crisis, the Bundesbank said in its monthly report on Nov. 19. The euro area, which is the destination of 40 percent of Germany’s exports, stayed in recession in the third quarter, shrinking 0.1 percent after a 0.2 percent decline in the second quarter, Eurostat said on Nov. 15.

Sentiment Falls

The government expects Germany’s economy to grow by about 1 percent next year, more than a forecast 0.8 percent this year. At the same time, business sentiment fell to its lowest in 30 months in October. In the same month, the unemployment level adjusted for seasonal swings rose by 20,000, twice the amount expected by economists.

Germany’s adjusted jobless rate rose from a two-decade low of 6.8 percent in August to a revised 6.9 percent in September and held there in October.

Merkel can ill-afford an increase in the deficit after championing her country’s budget record as an example to follow in the euro area. With her parliamentary majority, Merkel’s coalition on Nov. 20 passed legislation to anchor the European Union’s Fiscal Pact into German law. The German-designed pact commits signatory states to adopt automatic limits on new net borrowing.

Crisis-fighting steps may force up government spending in 2013, challenging current budget assumptions. Finance Minister Wolfgang Schaeuble said on Nov. 21 that he favors boosting the euro’s temporary rescue fund, the European Financial Stability Facility, by as much as 10 billion euros to help Greece. Germany, Europe’s biggest economy, may have to pay about a quarter of the costs.

This year, Schaeuble had to open a second budget to pay Germany’s share of creating the euro’s permanent rescue fund, bumping up the deficit by doing so.

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