GERMANY’S OPPOSITION parties have accused Berlin of “preaching water in Europe while drinking wine at home” for increasing borrowing in the new budget.
The Bundestag passed a 2012 federal budget yesterday with €26 billion in borrowing, up €4.1 billion on this year, despite a €20 billion rise in tax receipts.
New spending includes €1.5 billion for parents who mind their children at home, while civil servants can look forward to a reintroduction of their full Christmas bonus at a cost of €511 million.
“There are many in Europe who will clench their fists at the arrogant attitude of this government,” said Sigmar Gabriel, leader of the opposition Social Democrats.
Chancellor Angela Merkel brushed off what she described as his “duplicitous” arguments.
“You talk of Greece and Portugal and say, with tears in your eyes, it’s terrible, no growth is possible because of austerity measures and how terrible Germany is to insist they meet the stability criteria,” she said. “Yet when we meet the stability criteria and all of Europe asks us to contribute – to buy their products – you attack us. That doesn’t fit together.”
Finance minister Wolfgang Schäuble said the budget was sensitive to a forecast economic slowdown next year but insisted that Berlin was “well ahead” of its debt-cutting targets. Borrowing in 2012 works out at around 1 per cent of its GDP forecast for 2012, well below the three per cent EU stability pact ceiling.
But the economy still carries scars from the financial crisis, when the debt-to-GDP ratio leapt from 67 per cent to 83 per cent in just three years. The cost of servicing the federal debt – €38.3 billion annually – is Berlin’s second largest budgetary expense.
Berlin’s new budget has set alarm bells ringing far beyond the opposition benches. The Bundesbank describes the 2012 budget as a “considerable departure” from earlier consolidation promises.
Bundesbank president Jens Weidmann warned on Tuesday that it was a matter of economic necessity and political “credibility” for Germany to lead by example in Europe and drive down its debt.
“The austerity path must be continued in a consequential manner, so as not to endanger trust in public debt-making,” he said. “It is important to ignore temptations of positive [economic] developments and – as too often in the past – put off austerity into the future.” His words have taken on a new gravity after a German debt auction failed to attract buyers this week.
Calls for Berlin to save money come at a politically sensitive time for the chancellor. After ignoring the tax-cut demands of her Free Democrat coalition partner for two years, she has finally agreed to a tax reform that will cost an estimated €6 billion between now and 2013, an election year.
By 2016 the federal government is obliged under its “debt brake” to reduce new borrowing to near zero: current budget forecasts suggest Berlin will miss that target by at least €10 billion.
Germany has a budget week, a seven-day debate about the state of the nation’s finances during which every economist in the country pulls out their calculator.
The Ifo institute in Munich, for instance, reckons to hit the 60 per cent debt-to-GDP ratio demanded for all euro zone members, Germany will need a primary budgetary surplus of two per cent for the next decade.
Germany’s Taxpayers’ Federation was scathing of the budget in light of Berlin’s demands in Europe for greater austerity.