18 Dec, 2008

Explosion of New Debt Expected for Germany in 2009

A member of the German opposition FDP party said the budget deficit for 2009 will be the biggest ever in Germany’s post-war history and blamed Germany for not doing more to promote savings. Germany will set a new record for debt next year, surpassing even huge 40 billion euros ($56 billion) hole in the federal budget back in 1996, said Otto Fricke, chairman of the parliamentary budget committee and member free-market liberal Free Democrats in an interview with the Financial Times Deutschland on Wednesday, Dec. 17. “The second economic stimulus package will generate new debts in the order of 50 billion euros,” Fricke told national daily Sueddeutsche Zeitung. “No one in the (ruling coalition) government seems to give any thought as to where to promote savings.” Fricke’s estimate is higher than information provided to the Sueddeutsche Zeitung by unnamed internal government sources, the paper reported in its Wednesday edition. Over budget by more than 30 billion euros A spokesman at the Finance Ministry would not confirm the paper’s estimate putting new debt for 2009 at 30 billion euros. Official debt projected by the finance ministry for next year had been put at 18.5 billion euros based on estimated tax revenues and an economic growth rate of 0.2 percent in 2009. But on Tuesday, ministry officials had revised their estimates and said the German economy could contract by as much as 3.0 percent next year, meaning a loss of some 15 billion euros for the federal coffers, according to Fricke. In addition, Chancellor Angela Merkel’s coalition government had estimated that the budget for unemployment benefits would be reduced in 2009 compared to this year in spite of the world economic crisis that has adversely affected not only the banking sector, but also the automobile industry. Increased spending in 2009 “That is totally unrealistic,” Fricke told the AFP news agency of the government’s projections. “I see a hole of 4 billion euros.” Additional expenses related to health care investments and a much debated commuter tax break are among the unexpected expenditures that are estimated to cost the government over 10 billion euros next year, the Sueddeutsche reported. The government also wants to compensate for the loss of jobs in private industry by increased federal spending to create jobs. On Tuesday, Merkel told business leaders that the government plans to invest billions in long term infrastructure projects, such as renovating state schools, providing broadband communication networks in rural areas and taking on energy conservation measures, such insulating rental homes in order to bring down heating costs. Wait-and-see approach until Obama takes office The German government, however, wants to wait until US President-elect Barack Obama takes office before deciding on which measures Germany would take to stimulate the economy and deal with the looming budget deficit. Financial experts in Merkel’s own party expressed doubts that the government will keep the hole in federal budget from expanding and heaped criticism on the chancellor. “When the government follows a clear path, the increase in new debt can be contained. When government makes vague pronouncements without clear policy goals as in last few days, this provokes an even deeper crisis,” Steffen Kampeter, the CDU budget spokesman, told the Sueddeutsche Zeitung. (credit: Deutsche Welle)

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