German Chancellor Angela Merkel’s Cabinet backed a spending plan that will yield budget surpluses this year and next, strengthening the government’s hand as it presses international partners to focus on cutting debt.
Ministers meeting in Berlin today adopted the annual Finance Ministry report to the European Commission in which they agreed to cut Germany’s debt over the next four years.
The German stance sets up a potential clash among finance chiefs from the Group of 20 biggest economies when they gather in Washington from tomorrow. Finance Minister Wolfgang Schaeuble plans to press the group to sign up to similar “growth-friendly,” deficit-reduction policies to those he pursues at home, a government official told reporters in Berlin yesterday.
“Germany is committed to complying with all the national and European fiscal policy requirements,” the Finance Ministry said in a statement after the Cabinet meeting. “Sound public finances are a significant basis for effective government action and on-going favorable growth conditions.”
Germany will insist that G-20 members honor their deficit-reduction commitments made in Toronto in 2010 and seek to make progress on extending that pledge beyond 2016, the official told reporters.
Schaeuble may fail to find common cause with his U.S. counterpart, Treasury Secretary Jacob J. Lew, who used his first visit to Berlin on April 9 to prod Germany to help spur consumer demand, saying there is a need “to balance policies of growth and investment in the future with policies of fiscal consolidation.”
Lew’s case was backed up by the International Monetary Fund, which trimmed its global growth forecast and urged Europe to do all it can to strengthen private demand.
Germany’s budget, adjusted for economic swings and one-time factors, was in surplus last year at all levels of state and including social insurance coffers, the Finance Ministry said. Germany will maintain this “structural surplus” this year and next and cut its debt to 69 percent of gross domestic product by 2017 from 80.5 percent of GDP this year, it said.
Also today, Germany sold 3.35 billion euros ($4.4 billion) of 10-year government bonds at an average yield of 1.28 percent, the lowest on record, according to Bundesbank data. Portugal’s borrowing costs increased at today’s auction of 1.5 billion euros of 12-month bills.
While the Washington-based IMF sees the 17-country euro area shrinking 0.3 this year, with France joining Spain and Italy in contracting, it expects the German economy to grow 0.6 percent. Germany’s leading economic institutes will forecast growth of 0.8 percent in a joint report tomorrow, twice the government’s outlook, the Handelsblatt newspaper reported.
No. 2 Exporter
Germany, the world’s third-biggest exporter last year, will overtake the U.S. again in 2013 to place second after China, Bild newspaper cited DIHK industry and trade chamber chief economist Volker Treier as saying today. Germany is moving ahead of the U.S. this year because its 6 percent export growth is faster than that in the U.S., Treier said.
The IMF cut its U.S. growth projection to 1.9 percent from 2 percent in January to incorporate the expected impact of across-the-board spending cuts known as sequestration. While the threat of a euro region recession is the biggest immediate risk to global growth, failure to devise debt reduction plans in the U.S. and Japan over the medium term would also have consequences, the IMF said.