Deep in the Red Germany to Borrow Much More in 2010, Report Says

Germany is poised to borrow around 100 euros billion more next year, a newspaper reported on Thursday, signaling that Europe's largest economy is on course to break the EU's deficit rules -- and the extent of the financial headache facing the new center-right government coalition.

That's a lot of zeros: German Finance Minister Wolfgang Schäuble has a tricky job.
REUTERS

That's a lot of zeros: German Finance Minister Wolfgang Schäuble has a tricky job.


Germany is planning to take on around €100 billion ($147 billion) in extra borrowing next year, the Frankfurter Allgemeine Zeitung reported on Thursday.

The report, which was confirmed by SPIEGEL ONLINE sources, said that around €86 billion of the extra requirements stemmed from the country's core budget while another €14.5 billion came from special funds which were part of the country's stimulus package. Under the strain of the extra debt burden, Germany would be likely to significantly overstep the European Union's deficit spending limit of 3 percent of gross domestic product next year. The rules apply to the 16 countries in which the euro, Europe's common currency, is in circulation.

Finance Minister Wolfgang Schäuble reportedly planned a 10.5 percent rise in expenditures to €325.5 billion for next year, outspending the country's anticipated income of €239 billion, the report said.

A sharp rise in debt has long been on the cards thanks to the government's historic stimulus packages, which were designed to kickstart the domestic economy in the face of the global downturn.

Fodder for the Tax Cut Debate

However, the extent of the new debt in 2010 looked set to create further strife within Chancellor Angela Merkel's fledgling center-right coalition, which, contrary to expectations, has got off to a conflict-ridden start. Thursday's debt report sparked a speedy warning from Merkel's coalition partners, the business-friendly Free Democratic Party (FDP). "The deficit in the 2010 German budget should not exceed €80 billion," the FDP's Florian Toncar told the Web edition of the Bild newspaper. "That would be a sign that we link making savings with easing the situation for Germans."

And the issue will loom large in the context of next week's likely decision on an €8.5 billion package of tax cuts -- a promise which was at the heart of the FDP's election campaign. That plan has been the focus of angry clashes within the six-week-old coalition, with voices from Merkel's Christian Democratic Union warning it would lead to a shortfall in income.

For this year, though, Germany's debt pile is less dramatic. The total deficit spending for 2009 will likely amount to €37.5 billion. That is three times more than planned, but the country should be able to adhere to the EU's 3 percent deficit spending limit, thanks in part to its resilient job market.

Next year, however, the outlook will change. The planned extra borrowing is set to push the deficit figure to around six percent -- well in excess of the EU's limit.

jas -- and news reports

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