By Nick Mann | 4 December 2012
Germany is on course to balance its budget this year, two years earlier than forecast, the finance ministry announced yesterday.
In July, the government had forecast a deficit of 0.5% of gross domestic product, compared with 0.8% in 2011. But the ministry said its updated medium-term projections show: ‘Germany will achieve a balanced budget as early as 2012.’
The improvement was attributed to higher tax revenues and lower interest rates than expected, AFP reported. It comes despite the additional ‘financial burden of the long-term stabilisation of the eurozone’, the ministry noted. This includes strengthening the capital of the European Investment Bank and providing money for the European Stability Mechanism bailout fund, which have together cost in excess of €10bn.
Achieving a balanced budget is a long-term goal of the Maastricht Treaty, which established the European Union in 1993. Among its criteria for economic and monetary union is that budget deficits should be below 3% of GDP.
Germany, Europe’s largest economy, is now expected to record a budget surplus of 0.5% of GDP in both 2013 and 2014 before returning to a fully balanced budget in 2015 and 2016, the finance ministry said.
The country’s debt as a percentage of GDP is forecast to increase slightly this year – from 80.5% in 2011 to 81.5% – before falling to 80% in 2013 and 78% in 2014. The ministry then expects it to fall further to 75.5% in 2015 and 73% in 2016.
Under the Stability and Growth Pact, which aims to ensure fiscal discipline in the European Union, member states are expected to keep their debt to 60% of GDP or below, or – if they are above this – to show progress towards reducing it.
Last year, Germany was one of 14 EU member states with a debt-to-GDP ratio above 60%, but also one of only six countries whose budget was either in surplus or had a deficit below 1%.
