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German deficit seen ballooning to €30 billion

AFP/The Local · 17 Dec 2008, 11:03

Published: 17 Dec 2008 11:03 GMT+01:00

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Finance Minister Peer Steinbrück had expected until now to borrow €18.5 billion next year, based on estimated tax revenue that assumed Europe's biggest economy would grow by 0.2 percent, the Süddeutsche Zeitung newspaper reported.

But on Wednesday, an Economy Ministry official said the German economy could contract by as much as 3.0 percent next year.

"We will only make a decision in early January, when new data on the economy provide a clearer picture," Deputy Economy Minister Walther Otremba said. "What will be decided in the end is completely open. The range is currently from zero to minus three percent."

However, even if growth domestic product only shrinks by 2.0 percent, the government will need at the minimum an extra €11 billion next year.

Besides covering a €6-billion tax revenue shortfall, Steinbrück will have to spend €2 billion to €3 billion more in unemployment benefits and around €2.5 billion for a tax credit for commuters that Germany's Constitutional Court recently ruled must be paid out retroactively after the government tried to limit it a few years ago.

Some in the ruling coalition of conservative Christian Democrats and centre-left Social Democrats are already considering the possibility that Steinbrück could break the all-time record for new debt of €40 billion set back in 1996.

“The debt record will fall at the very latest once the coalition passes a second stimulus package,” a government source told Süddeutsche Zeitung.

German Chancellor Angela Merkel said on Tuesday her government may invest "another few billion" euros in a new stimulus package early next year to help overcome the economic crisis.

Story continues below…

"We will take action again in January – another few billion could come together," she told a conference of business leaders in the western city of Mannheim.

But she warned that state aid alone could only "help in a limited way" to end the recession and ruled out a voucher plan for consumers which has been the subject of speculation in the German press. Merkel said the fresh investment could go toward infrastructure improvements including roads, broadband communications networks and renovation of schools, as well as subsidies for temporary jobs.

The government is to decide in January whether to proceed with a new stimulus package to follow the €31 billion already earmarked to fight the financial crisis and economic downturn.

AFP/The Local (news@thelocal.de)

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