Tags: EU | Germany | Budget

Germany OKs Spending, Borrowing Cuts to Avoid Debt Crisis

Wednesday, 07 Jul 2010 10:25 AM

Germany's Cabinet on Wednesday approved a 2011 budget that foresees a 3.8 percent cut to spending from this year and lower new borrowing, aimed at putting Europe's biggest economy on track to reduce its debt.

The budget calls for total spending of 307.4 billion euros ($387 billion) — down from a planned 319.5 billion euros this year. The government plans to reduce spending further to 301 billion euros in 2012 and leave it around that level for the following two years.

Net new borrowing in 2011 is pegged at 57.5 billion euros, down from an expected 65.2 billion euros in 2010. It is supposed to sink to 24.1 billion euros in 2014.

The government has revised this year's forecast down from 80.2 billion euros because relatively tame unemployment — 7.5 percent in June — kept down spending on benefits.

Germany has been a leading advocate of saving to cut back budget deficits, although the U.S. and others have cautioned against killing the recovery by retrenching too rapidly. The Group of 20 economic powers last month committed developed countries to cutting deficits in half by 2013.

"We are fulfilling the demands of growth-oriented deficit reduction," Finance Minister Wolfgang Schaeuble said of the budget, adding that running up yet more debt would be "wrong for Germany."

The government has spared education spending. The education and research ministry will be the only one to get a significant budget increase — a 7.2 percent rise next year to 11.6 billion euros.

The Labor Ministry, which has by far the largest single budget, is to take the biggest hit — a 7.9 percent reduction to 131.8 billion euros as the government trims programs such as a subsidy for new parents who stay home and benefits for the long-term jobless.

That is part of a package of cuts drawn up last month that also includes more taxation for the nuclear power industry and shedding as many as 15,000 federal government jobs through 2014.

Germany had reduced its budget deficit to zero in 2008 before the financial crisis hit. However, it rose to 3.1 percent last year, above the European Union limit of 3 percent for countries using the euro, and is expected to top 5 percent this year.

Schaeuble reiterated Germany's commitment to get the deficit back under 3 percent by 2013. And even before the euro zone debt crisis, Berlin had anchored a so-called "debt brake" in the constitution that forces it to cut back borrowing over the coming years.

Next year, the Transport Ministry's budget is to decline 5 percent next year to 25 billion euros; spending at the Economy Ministry is to go down 1.1 percent to nearly 6.1 billion euros; and the Agriculture Ministry's budget will fall 6.1 percent to 5.5 billion euros.

The Defense Ministry is getting a 1.4 percent increase to 31.5 billion euros. However, Defense Minister Karl-Theodor zu Guttenberg has stressed the need to save 1 billion euros a year in the long term.

The Handelsblatt business daily reported that a document drawn up by military officials proposes staying out of defense contractor EADS' Talarion drone project and considering revising the number of Airbus A400M transport planes Germany is ordering.

The ministry responded that "there are no decisions yet on savings in defense projects" and that proposals which have surfaced in discussion papers are liable to be changed.

The 2011 budget still needs parliamentary approval.

Volker Kauder, the parliamentary leader of Chancellor Angela Merkel's conservatives, said solid government finances are essential for European countries.

Nations can "survive any swine flu if the body is healthy," he told ARD television. "Speculators only have a chance when countries are weak — so there must be savings."

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Economy
Germany's Cabinet on Wednesday approved a 2011 budget that foresees a 3.8 percent cut to spending from this year and lower new borrowing, aimed at putting Europe's biggest economy on track to reduce its debt.The budget calls for total spending of 307.4 billion euros ($387...
EU,Germany,Budget
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2010-25-07
 

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