Germany finance minister unsure how to cut deficit

17th December 2009, Comments 0 comments

Finance Minister Wolfgang Schaeuble admits he is unsure how to start reducing the growing deficit in 2011 but stresses it will be a difficult process.

Frankfurt – German Finance Minister Wolfgang Schaeuble is not sure how to whip the country's finances into shape but he nonetheless vowed Wednesday to start cutting a growing deficit in 2011.

"We must reduce the budget deficit starting in 2011," Schaeuble insisted after the government presented a draft 2010 budget that forecast record debt.

"How that will happen exactly, I cannot yet say," the finance minister acknowledged, while warning the process would be "incredibly difficult, and each step will have to be carefully considered."

At the same time, he warned Greece its own fiscal problems were a serious cause for concern and said Athens must work hard to reduce a public deficit forecast to hit 12.7 percent of gross domestic product this year.

That would be a eurozone record and way above the three percent limit set under European Union rules.

In Germany meanwhile, authorities will have to borrow an additional EUR 85.8 billion next year to plug holes in the budget, Schaeuble said.

Another EUR 14 billion would be attributed to special items like support for the banking sector, bringing the total of new net debt to around EUR 100 billion.

Gross debt, which does not include revenue from debt owed to Germany, will climb to more than EUR 350 billion as Europe's biggest economy strives to pull out of its worst post-war recession.

Spending estimated to reach EUR 325.4 billion will focus on social welfare, including pensions and unemployment benefits, and on payments linked to growing debt.

German authorities have decided to first tackle problems stemming from the global economic crisis, in part with tax cuts, even though that means letting the public deficit and debt rise.

Record debt in 2010 will just be "a reflection of the financial and economic crisis," Schaeuble said.

Germany's public deficit should reach around three percent of GDP this year, the limit for eurozone countries under the European Union's Stability and Growth Pact.

Schaeuble estimated it would be close to six percent in 2010, but said the government would attain the three percent limit again by 2013.

"Germany is one of the most, if not the most important pillar" of eurozone economic stability, he stressed, and a German law requires the government to sharply reduce its deficit by 2016.

The finance minister also said he had urged Greek counterpart Georges Papaconstantinou to get to grips with a soaring deficit that has fuelled concern throughout the 16-nation eurozone.

"Greece is giving us great concern," Schaeuble said. "The Greek finance minister was here Monday, we talked about this very clearly.

"There is no way for Greece but to go down the hard, much more difficult path" to healthy finances, he added.

AFP / Expatica

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