A German parliamentary committee today set a limit on new borrowing in 2013 that puts the euro zone's largest economy on track to honour its own demands for balanced budgets across the region.

The German parliament's budget committee set a cap for net new borrowing next year of €17.1 billion after a meeting that ended at 3am, budget committee members told Reuters.

That is down from the €18.8 billion net new borrowing target first envisioned.

It would mean Chancellor Angela Merkel's centre-right coalition will have a nearly balanced budget three years sooner than required by law by achieving the new budget deficit ceiling of no more than 0.35 per cent of gross domestic product (GDP).

The federal government will reach the target faster than planned thanks to strong economic growth, lower unemployment and rising tax revenues.

"This is a great success and an important step towards achieving a structurally balanced budget and a debt-free budget," said Norbert Barthle, a senior parliamentary budget expert from Dr Merkel's Christian Democrats (CDU). Parliament will vote on the budget in two weeks.

The budget approved by the committee foresees federal spending of €302 billion in 2013 with tax revenues of €260.6 billion. On top of those revenues are earnings from privatisations and dividends. The remaining gap will be financed with new borrowing.

The ruling coalition's goal is to achieve a structurally balanced budget by 2014. The federal government could then nevertheless still borrow funds if necessary for one-off expenditures, such as contributions to the European Stability Mechanism (ESM) bailout scheme.

But in principle the law requires the government to fully cover its recurring expenditures with income.

Reuters