GERMANY WILL borrow a record €100 billion – a fifth of its total budget – next year to balance its books, according to the new budget agreed by the federal government in Berlin.
As well as doubling its borrowing from this year, the 2010 budget includes a 7 per cent increase in spending to €325.4 billion in an effort to safeguard Europe’s largest economy from recession.
After an estimated 5 per cent shrink in gross domestic product (GDP) this year, conservative estimates suggest the economy will grow by 1.2 per cent next year.
To encourage growth, the new budget, which has yet to be approved by parliament, will result in the 2010 deficit spiralling “closer to 6 than 5 per cent”, said German finance minister Wolfgang Schäuble yesterday.
Despite this year’s economic slump, he said Germany’s deficit would, with luck, end 2009 just within the euro-zone ceiling of 3 per cent of GDP. Berlin’s aim is to meet the euro-zone borrowing guidelines again by 2013 at the latest.
Mr Schäuble said the 2010 federal budget – a long way from the 2008 forecast of just €8 billion in borrowings – was a “bitter . . . reflection of the international financial crisis”.
Berlin has backed deficit-financed stimulus spending over a limited period as the most effective way to ward off spending.
A new “growth acceleration Bill”, expected to be agreed today, would give extra child benefit to families, adjust corporate tax rates and slash VAT for hoteliers.
To prevent deficit spending becoming a tempting habit for future governments, Berlin has anchored in the constitution a so-called “debt brake”. It calls for a balanced federal budget by 2016 and forces existing debts to be reduced by then to 0.35 per cent of GDP – requiring €10 billion in savings annually from 2011.
With that in mind, Mr Schäuble has warned of drastic spending cuts after the economy begins to recover next year.
The opposition Social Democrats, who controlled the finance ministry for a decade until October, have criticised the budget for not showing where the proposed deficit cuts can be made.
Meanwhile, the Ifo Institute for Economic Research has estimated that the jobless rate in Germany will increase next year to 8.3 per cent compared to 7.9 per cent in 2009.
