open popup Sound finances for Germany Photo: transit / Busse

The government's package for the future guarantees that the country is on course for sustainable growth and budget consolidation.

The national budget will put into practice much of the package for the future. It will save the government more than 80 billion euros by 2014. The second key part of the package is the Budget Supplement Act 2011, which was adopted by the Bundesrat on 26 November.

Budget Supplement Act

Responsibility for stability in Europe

With its reliable approach towards consolidating its budget, Germany is helping strengthen the euro and doing its bit to ensure stability in Europe. The sound financial policy of the German government is a clear sign that Germany accepts its responsibility. The German government will pursue this path consistently and circumspectly.

The financial crisis is still casting a shadow over the economic development of Europe. Ireland is currently dependent on the assistance of other European nations. The EU states must now tackle the root causes of the crisis, one being their failure over a great many years to consolidate their budgets.

Germany has weathered the worst economic crisis in the history of the Federal Republic of Germany better than it had dared to hope. Germany is the locomotive of growth in Europe. Over the next four years the German government will consolidate the budget on a sustainable basis, while simultaneously fostering economic growth.

Fostering future growth

During the crisis the German government took many steps to support the economy and shore up the labour market. These are set to expire as of next year, because they have done their job. During the crisis they managed to tide the economy over the worst, and they are still having a positive impact.

Now the focus must turn to ensuring that Germany is fit for the financial future.

To foster economic growth, the German government has taken a very close look at ways of making savings. The consolidation course is pro-growth. It encourages investment and increases the funding available for education and research to an all time high of almost 12 billion euros.   

The consolidation package is balanced. The government has made cuts in social services, but equally in the administration and in industry. 

The economy is booming

The national budget should generate more tax revenues once more thanks to positive macroeconomic developments, although revenues will remain well below the 2008, pre-crisis level. Next year too the central government will reduce net borrowing.

In the draft budget drawn up in summer, the government planned to borrow 57.5 billion euros. Thanks to the upswing in the economy, the Budget Act 2011 provides for only 48.4 billion euros of new debt. Although this is good news, it does still mean almost 50 billion euros of new debt for the country.

Cap on borrowing to come

With its package for the future the German government will cap new borrowing. Over the next four years it will consistently reduce the excessively high level of borrowing required to cope with the financial crisis. By 2014 it expects that new debts will stand at 24.1 billion euros, or only half of the current level of new borrowing. 

The total debt of the federal government, which currently stands at over 1,500 billion euros, will then continue to rise over the next few years. The, however, the cap on new borrowing will kick in. Positive economic trends in no way lessen the need to consolidate the budget. Quite the reverse is true. The cap on new borrowing means that the government must build up reserves during good times to tide them over harder periods.

The starting point for reducing debt in line with the cap on borrowing is not in fact net new borrowing. What is much more important is the structural budget deficit in 2010 (i.e. irrespective of the influence of economic trends). The 53 billion euros or so are to be cut by 2016 to less than 10 billion euros.

Reining back on spending

The government will be cutting its spending above all. The 2011 budget provides for spending of 305.8 billion euros (compared with 319.5 billion euros in 2010).

Until 2014, the spending of the federal government is to drop year by year for the first time ever. Cutting spending offers better prospects for growth than raising taxes.