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Flush Germany balances budget early

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Photo: DPA
12:26 CET+01:00
The German Finance Ministry said on Monday it expects to reach a balanced budget this year, two years earlier than expected.

Under eurozone rules enshrined in the European Union's Maastricht Treaty, member countries are not allowed to run up deficits in excess of 3.0 percent of gross domestic product (GDP) and must balance their budgets in the medium term.

Only a few months ago, Berlin had been projecting a deficit ratio of about 0.5 percent for 2012, compared with 0.8 percent for 2011. And the overall state or public budget was expected to be balanced by 2014.

But "on the basis of our updated medium-term projections, Germany will achieve a balanced budget as early as 2012," the Finance Ministry said in a statement.

A ministry spokesman attributed the improvement to higher tax revenues and lower financing costs as a result of low interest rates.

"Based on current assumptions, the overall Maastricht deficit will be brought down completely to zero this year," the statement said.

The German economy, Europe's biggest, has managed to hold up fairly well so far, shrugging off the worst of the debt crisis that has pushed many of its neighbours into recession. Unemployment is also close to historic low levels meaning tax revenues are strong and jobless payouts low.

And while borrowing costs for debt-wracked countries are high, Germany has benefited from ultra-low borrowing costs as a result of its safe-haven status.

The public budget is even expected to move into a modest surplus of 0.5 percent in both 2013 and 2014 before coming back to zero in 2015 and 2016, according to the ministry's medium-term projections.

The country's overall debt levels are therefore also falling with the debt-to-GDP ratio projected to stand at 81.5 percent this year, two percentage points lower than forecast back in the summer, the ministry said. In 2011, the debt ratio stood at 80.5 percent.

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And it could even drop as low as 73 percent by 2016, the ministry predicted.

EU rules put a ceiling of 60 percent on a member country's debt-to-GDP ratio.

AFP/mry

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