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How will Germany spend its €6 billion surplus?

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How will Germany spend its €6 billion surplus?
Photo: DPA.
08:05 CET+01:00
The Finance Ministry said the government achieved a federal budget surplus of €6.2 billion last year - and politicians are already fighting over what to do with it.

The Finance Ministry announced on Thursday that Germany had achieved a surplus of €6.2 billion in 2016.

Politicians are already battling over how to spend the hefty amount, with conservatives advocating tax reductions and paying off old debts, while left-wingers call for investment in infrastructure and education.

"We should give something back to the citizens," Bavaria's conservative finance minister Markus Söder told Bild newspaper. "Given the low interest rates and rising inflation, now is the time for tax cuts."

Conservative CDU Finance Minister Wolfgang Schäuble, meanwhile, said that he wanted to use the surplus to reduce debt.

But the Social Democrats (SPD) were opposed to this notion, suggesting further investment and providing some relief for citizens.

"Money that the citizens have generated should not be hoarded by the Finance Ministry," said SPD head Sigmar Gabriel.

Due to steady economic activity and employment rates, as well as low interest rates, the state coffers overall were full last year: Altogether, federal, state and community governments ended with a surplus of €19 billion.

A high-ranking representative of the Finance Ministry told DPA that the most sensible thing to do would be to repay debts to international partners - the federal government is about €1.27 trillion in the hole.

"It does not hurt to start paying something back," the Finance Ministry source said.

At the end of November, Chancellor Angela Merkel's cabinet adopted a supplementary budget for 2016, which has not yet been adopted. In this budget, the government planned to raise funding for a restructuring programme of struggling schools by €3.5 billion to €7 billion. If the SPD would have their way, there would be more investment in this area.

"With his repayment-fetish in a zero-interest phase, Mr. Schäuble is choking off urgently needed investment in the future of our country," said SPD general secretary Katarina Barley, adding that he instead should fork out money for failing schools, broken bridges and faster Internet. 

But Schäuble's CDU party mate Peter Tauber disagreed.

"Ms. Barley obviously has no clue what is in the federal budget, which she herself agreed to," Tauber said, adding that the budget had a record amount set aside for education, research, and infrastructure. And if old debts were paid off, Tauber continued, the country would experience intergenerational justice. 

Meanwhile, others have called for the abolition of certain taxes to relieve consumers, Die Linke (The Left Party) wants a special programme for pre-school and daycare, and the Greens want the surplus to go towards investment in climate protection, affordable housing and education.

Germany's strong performance is also likely to fuel calls from European peers for Berlin to use its fiscal leeway to ramp up spending and help bolster the eurozone recovery.

Economist Carsten Brzeski of ING Diba bank noted that German growth had picked up last year unperturbed by Brexit, a coup attempt in Turkey, Donald Trump's shock US election win and the fall of Italian Prime Minister Matteo Renzi.

"Strong domestic demand has shielded the German economy against most external risks," he said.

Economy beats expectations for growth

Europe's largest economy  grew by 1.9 percent in 2016 powered by private consumption and state spending on refugees, the federal statistics office Destatis said on Thursday in a preliminary estimate.

The estimate beats last year's growth figure of 1.7 percent but is still subject to change once the official fourth quarter results are in.

"Domestic consumption was decisive for the positive development in the German economy in 2016," Destatis said in a statement, pointing to 2.0-percent growth in private consumption and a 4.2 percent increase in government spending.

"One of the reasons for this strong growth is that a large number of people seeking refuge immigrated, which resulted in considerable costs," Destatis said.

Overall growth overshot the 1.8-percent forecast of the Bundesbank, Germany's central bank - which had already upped its forecast for the year in December.

In absolute terms, Germany's gross domestic product increased to more than €3.1 trillion - consolidating its position above the 3.0 trillion threshold breached for the first time in 2015.

Looking at the fourth quarter alone, Destatis said that according to a rough calculation the German economy expanded by around 0.5 percent in the final months of 2016, continuing its recovery from a summer slump.

The official fourth-quarter estimate will be published on February 14th.

Strong business and investor confidence surveys and positive industrial indicators have some observers predicting the good times will carry on into the new year.

"For 2017, we are expecting a continued upswing," said analyst Stefan Kipar of BayernLB bank.

But Brzeski warned against "self-complacency" among policymakers.

"The economy urgently needs new impetus from new structural reforms and stronger public and private investment," he said.

"It is very unlikely that it will get any of these before the elections."

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