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Flush Germany balances budget early

The German Finance Ministry said on Monday it expects to reach a balanced budget this year, two years earlier than expected.

Flush Germany balances budget early
Photo: DPA

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.

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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COVID-19

Court turns down AfD-led challenge to Germany’s spending in pandemic

The German Constitutional Court rejected challenges Tuesday to Berlin's participation in the European Union's coronavirus recovery fund, but expressed some reservations about the massive package.

Court turns down AfD-led challenge to Germany's spending in pandemic

Germany last year ratified the €750-billion ($790-billion) fund, which offers loans and grants to EU countries hit hardest by the pandemic.

The court in Karlsruhe ruled on two challenges, one submitted by a former founder of the far-right AfD party, and the other by a businessman.

They argued the fund could ultimately lead to Germany, Europe’s biggest economy, having to take on the debts of other EU member states on a permanent basis.

But the Constitutional Court judges ruled the EU measure does not violate Germany’s Basic Law, which forbids the government from sharing other countries’ debts.

READ ALSO: Germany plans return to debt-limit rules in 2023

The judgement noted the government had stressed that the plan was “intended to be a one-time instrument in reaction to an unprecedented crisis”.

It also noted that the German parliament retains “sufficient influence in the decision-making process as to how the funds provided will be used”.

The judges, who ruled six to one against the challenges, did however express some reservations.

They questioned whether paying out such a large amount over the planned period – until 2026 – could really be considered “an exceptional measure” to fight the pandemic.

At least 37 percent of the funds are aimed at achieving climate targets, the judges said, noting it was hard to see a link between combating global warming and the pandemic.

READ ALSO: Germany to fast-track disputed €200 billion energy fund

They also warned against any permanent mechanism that could lead to EU members taking on joint liability over the long term.

Berenberg Bank economist Holger Schmieding said the ruling had “raised serious doubts whether the joint issuance to finance the fund is in line with” EU treaties.

“The German court — once again — emphasised German limits for EU fiscal integration,” he said.

The court had already thrown out a legal challenge, in April 2021, that had initially stopped Berlin from ratifying the financial package.

Along with French President Emmanuel Macron, then chancellor Angela Merkel sketched out the fund in 2020, which eventually was agreed by the EU’s 27 members in December.

The first funds were disbursed in summer 2021, with the most given to Italy and Spain, both hit hard by the pandemic.

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