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Labour Agency faces shortfall amid worsening recession
Photo: DPA

Labour Agency faces shortfall amid worsening recession

Published on: 26 Mar 2009 08:30 CET

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As Europe's largest economy falters amid the global downturn, costs of unemployment compensation could mean billions in additional expenses for the government.

“If the federal government cuts its growth forecast further and these negative economic scenarios come true, the social benefits finances suffer,” budgetary expert for the Christian Democrats’ parliamentary group Steffen Kampeter told the paper.

“We then face additional burdens in the billions,” he said, adding that current budgetary plans would not be sufficient to handle the increased burden.

According to the report, the Labour Agency currently has a €17 billion cushion, but a spike in joblessness in 2009 will create a deficit of €11 billion – forcing the agency to tap its reserves to make up the difference.

Meanwhile the budget allotted in February 2009 was based on projections that the German economy would shrink by 2.25 percent, but the government reportedly expects contraction twice as bad.

The RWI institute for economic research in the state of Rhineland-Westphalia predicts that the number of unemployed will increase from an average of 3.6 million this year to 4.6 million in 2010. Benefits for just 100,000 unemployed cost an average of €500,000 per year.

DDP/The Local(news@thelocal.de)