German debt to stay high 'for many years': central bank

21st November 2011, Comments 0 comments

The debt levels of eurozone powerhouse Germany will stay elevated for several years to come, its central bank warned on Monday, as Berlin insists its European neighbours cut their own debt piles.

Germany is expected to have "a debt level above 60 percent (of gross domestic product) for many years," even without taking into account the current crisis, the powerful Bundesbank cautioned in its monthly report.

With a rapidly ageing and shrinking population, a "loss of confidence" in the solidity of Germany's public finances could not be ruled out if "further costs" arose, the bank added.

This demographic factor "will soon get considerably worse", the report said, which will automatically push up the debt levels if decisive action is not taken.

As an ageing population retires, tax revenues decline and pension and healthcare costs rise, pushing up a country's deficit, which is then added to its debt pile.

Germany's debt is set this year to decline to 81.1 percent of GDP, compared to 83.2 percent last year, according to federal government figures.

In addition, a relatively healthy first half of the year economically should cut the deficit to around one percent this year, compared to 4.3 percent in 2010, the Bundesbank said.

The finance ministry, in its monthly report also published on Monday, was similarly bullish, seeing a deficit of 1.3 percent of GDP this year, dropping to one percent in 2012 and 0.7 percent in 2013.

The Frankfurt-based Bundesbank warned the politicians in Berlin however, not to rest on their laurels.

"There is still a need for consolidation" in the public finances, the report warned.

© 2011 AFP

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