Germany says economic risks from Ukraine 'manageable'

12th March 2014, Comments 0 comments

German Finance Minister Wolfgang Schaeuble said Wednesday that any financial and economic fallout from the crisis in Ukraine would be "manageable" both for Germany and Europe as a whole.

"We assess the risks from the difficult situation in Ukraine to be very serious. But we believe the fallout for the economy and for financial policy is -- and will remain -- manageable, for both Germany and Europe as a whole," Schaeuble told a news conference.

As long as the crisis continued to unfold "rationally... our financial and budget planning will not be negatively affected," the minister said.

Schaeuble was presenting the government's budget plans for 2014-2018, in which Europe's biggest economy is hoping to balance its public finances and is not expecting to take up any additional debt from 2015.

It will be the first time in 46 years that Germany's public spending has not exceeded its tax revenues.

"The government's budget planning represent a caesura. From 2015 onwards, the government will not take up any additional new debt. We won't spend more than we take in in revenues," Schaeuble said.

Under the budget plans, Germany will take up only 6.5 billion euros ($9.0 billion) in new debt this year, the lowest amount in 40 years, the minister said.

On a structurally adjusted basis -- ie. taking into account economic factors and transactions of a purely financial nature -- "that means that the federal budget will be balanced in 2014," he said.

Berlin is budgeting for public spending of 298.5 billion euros in 2014. And that figure will rise to 299.7 billion euros in 2015, 309.7 billion euros in 2016, 318.8 billion euros in 2017 and 327.2 billion euros in 2018.

EU countries are obliged, under membership rules, to limit their public deficits to no more than 3.0 percent of gross domestic product and to achieve balanced budgets or even surpluses in the longer term.

Germany, which has weathered the financial and economic crisis much better than most of its EU neighbours, with record low unemployment, already managed to run up a small surplus equivalent to 0.1 percent of GDP in 2012.

In 2013, it even booked a small surplus of 0.3 billion euros, according to the latest data published by the federal statistics office Destatis last month.

Turning to the wider economic risks currently facing the euro area, Schaeuble said he sees no signs of deflation, a spectre that is frequently conjured up in face of the current period of ultra-low inflation in the 18 countries that share the single currency.

Deflation is a destructive spiral of falling prices in which consumers put off purchases, thus destroying salaries, jobs and investment.

But Schaeuble said a whole range of economic institutions, including the European Central Bank and Germany's central bank or Bundesbank, see no such risk at present.

"I agree with (ECB president Mario) Draghi. I don't see any signs of deflation, either," Schaeuble said.

At its regular monthly policy meeting last week, the ECB held off from cutting its key interest rates -- already at all-time lows -- still further, pointing to hopes that the eurozone's crisis-battered economy is slowly on the path to recovery.

Schaeuble told the news conference that "from a German point of view, I think we have a interest rate level that's too low in the medium term.

"I know that the situation is very different in some other European countries, that's why a common monetary policy isn't quite so easy in Europe," the minister said.

© 2014 AFP

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