Public deficit drops to three-year low

Germany announced on Thursday a drop in its public finance deficit to 0.6 percent during the first half of the year, the lowest level since early 2008.

Public deficit drops to three-year low
Photo: DPA

As eurozone partners work on ever tighter austerity plans to balance their books, Germany – which underwrites a large share of their rescue packages – is now well ahead in strengthening its finances.

It has made big progress despite heavy spending on stimulus programmes over the past two years to offset the worst recession since 1945.

The government expects a 1.5-percent public deficit for this year and hopes to break even in 2014.

But other official data also indicated that Germany is paying a price on its trade balance for its decision to abandon nuclear energy.

The latest deficit figure of 0.6 percent compares to a 3.1-percent deficit in the first half of 2010 and to a 5.4-percent deficit in the second half of 2010, according to Destatis, the federal office of statistics.

Destatis also confirmed a meagre 0.1-percent expansion of the country’s gross domestic product in the second quarter, suggesting this was partly due to increased energy imports resulting from Germany’s nuclear energy freeze.

The lower deficit figure was due to a 6.0-percent increase in tax revenues compared to tax income in the same period last year, and to slower spending which increased by just 0.3 percent compared to expenditure in the first half of 2010, Destatis said.

This compares to an overall 2010 deficit figure of 4.3 percent, up on previous estimates, because of the need to account for debts held by state-controlled “bad bank” Hypo Real Estate, Destatis said.

Exports were up 1.3 percent in the second quarter of this year, Destatis said, while imports were up 3.2 percent over the same period.

“Germany’s decision to abandon nuclear energy has had a noticeable impact” on imports, Destatis said.

Angela Merkel’s government ordered the immediate closure of the country’s seven oldest nuclear reactors in the wake of Japan’s massive March earthquake and tsunami which caused a radiation leak at the Fukushima Daiichi nuclear plant.

This resulted in Germany becoming a net importer rather than exporter of electricity, Destatis said.

The German parliament has voted to close all remaining nuclear plants over the coming decade.

Private consumption, up by 0.2 percent, remained weak over the second quarter because of higher energy prices and concern over the global financial crisis, the statistics office also said.

The government and the German central bank are still banking on economic growth of 3.0 percent this year.


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German cabinet agrees record levels of new debt for 2021

The German government agreed Wednesday to take on record borrowing this year to weather the economic blow of the coronavirus pandemic.

German cabinet agrees record levels of new debt for 2021
Finance Minister Olaf Scholz. credit: dpa | Kay Nietfeld

In budget adjustments signed off by Chancellor Angela Merkel’s cabinet, Europe’s largest economy will borrow a total €240.2 billion in 2021, a third more than initially planned.

The adjusted budget, which will see Berlin break its taboo on new debt for the third year in a row, still has to be approved by parliament.

“We have decided to suspend the debt brake once again, and I think that’s justified,” Merkel told the Bundestag lower house, adding that the budget was “measured” despite “more insecurity” than usual.

“We are taking the right measures to manage the economic and financial effects of the pandemic,” added Finance Minister Olaf Scholz.

After maintaining a budget surplus for the last decade, the economic slump caused by the pandemic has forced Berlin to take on €370 billion in new debt in 2020 and 2021, with an extra €85.1 billion planned for 2022.

With the country facing a dangerous third wave and shutdown measures extended into April, Germany’s recovery has proved slower than expected this year.

Having originally planned to halt borrowing in 2022, the government is now aiming to return to its golden rule of fiscal discipline a year later, with only €8.3 billion of new debt in 2023.

The so-called “debt brake” is a rule enshrined in the constitution which forbids the government from borrowing more than 0.35 percent of gross domestic product (GDP) in a year.

READ ALSO: Merkel admits Easter coronavirus shutdown plan her ‘mistake alone’

Germany smashed the taboo in 2020 and 2021 as it scrambled to shield businesses and workers from the economic hit of the coronavirus.

The state has already paid out more than 114 billion euros of financial support to businesses since the beginning of the pandemic in the form of guaranteed loans, direct aid and shorter-hours work schemes.

Yet according to a report published by the German Economic Institute on Wednesday, the crisis has still cost the German economy 250 billion euros so far.

Extended restrictions

Hopes of a recovery this year have been dashed with entire sectors of the economy idled for months and the government revising down its 2021 growth forecast to three percent in January.

As a third wave of the pandemic tears through Europe, Germany extended shutdown measures by another several weeks at a marathon meeting between Merkel and state premiers on Monday.

Though plans for a strict five-day lockdown over Easter were scrapped Wednesday, businesses such as non-essential shops, leisure facilities and cultural venues will still remain largely closed until at least April 18.

In a report published Monday, the Bundesbank central bank predicted that restrictions would see economic output “contract markedly” in the first quarter of 2021.

The measures have also been met with growing frustration from business organisations, with the German Commerce Association warning that 120,000 shops could be forced to close if the measures continue to drag on.

The issue of taking on new debt, meanwhile, has also sparked heated political debate ahead of a September general election.

In January, Merkel’s chief of staff Helge Braun caused a major ruckus within his own CDU party when he suggested that the rule on fiscal discipline should be lifted for several years to come.

SEE ALSO: ‘We have finances well under control’: Germany takes on less debt than expected in 2020