Germany sees balanced budget in 2012

3rd December 2012, Comments 0 comments

Germany said Monday it will balance its budget two years earlier than expected as its relative resilience to the debt crisis has enabled it to enjoy higher tax revenues and lower financing costs.

In a statement, the German finance ministry said it expects to reach a balanced budget in 2012, not 2014 as envisaged earlier this year.

Under rules enshrined in the European Union's Maastricht Treaty, member countries are not allowed to run up deficits in excess of 3.0 percent of gross domestic product (GDP) and must balance their budgets in the medium term.

Only a few months ago, Berlin had been projecting a deficit ratio of about 0.5 percent for 2012, compared with 0.8 percent for 2011. And the overall state or public budget was expected to be balanced by 2014.

But "on the basis of our updated medium-term projections, Germany will achieve a balanced budget as early as 2012," the finance ministry said in a statement.

A ministry spokesman attributed the improvement to higher tax revenues -- at federal, regional state and municipal levels -- and lower financing costs as a result of historically low interest rates.

"Based on current assumptions, the overall Maastricht deficit will be brought down completely to zero this year," the statement said.

The improvement was all the more satisfying in view of the additional financial burdens -- estimated at some 10 billion euros ($13 billion) -- related to the raft of new stabilisation measures taken by eurozone member states in recent months, notably the ESM bailout fund and the moves to boost the capital of the European Investment Bank (EIB).

The German economy, Europe's biggest, has managed to hold up fairly well so far, shrugging off the worst of the debt crisis that has pushed many of its neighbours into recession.

Unemployment is also close to historic low levels meaning tax revenues are strong and jobless payouts low.

And while borrowing costs for debt-wracked countries are high, Germany has benefitted from ultra-low borrowing costs as a result of its safe-haven status.

The public budget is even expected to move into a modest surplus of 0.5 percent in both 2013 and 2014 before coming back to zero in 2015 and 2016, according to the ministry's medium-term projections.

That puts Germany in a position to more than meet the European fiscal pact's "golden rule" limiting a member state's so-called "structural" deficit to a maximum of 0.5 percent of GDP.

A structural deficit is a country's financial shortfall after adjustment for cyclical factors.

Germany's overall debt levels are also falling with the debt-to-GDP ratio projected to stand at 81.5 percent this year, two percentage points lower than forecast back in the summer, the ministry said.

In 2011, the debt ratio stood at 80.5 percent.

And it could even drop as low as 73 percent by 2016, the ministry predicted.

EU rules put a ceiling of 60 percent on a member country's debt-to-GDP ratio.

© 2012 AFP

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