Defying the Crisis Germany Achieves First Half Budgetary Surplus

Even as much of the euro zone faces deep budget deficits and poor economic performance, Germany continues to buck the trend, having generated a budgetary surplus in the first half of the year. But how long will the good times last?

Germany's parliament building in Berlin: The country generated a budgetary surplus in the first half of this year.

Germany's parliament building in Berlin: The country generated a budgetary surplus in the first half of this year.

There is little doubt that the clouds on the horizon are dark. Greece is facing bankruptcy, Spain might need a bailout and Italy could also ultimately fall victim to its enormous debt. Even in Germany, worries about the country's economic future are mounting.

When it comes to state finances, however, Berlin's present is looking very rosy indeed. Germany's Federal Statistical Office announced on Thursday that better than expected tax revenues, combined with excess social security funding, have led to a surplus of €8.3 billion ($10.4 billion) for the first six months of the year, or 0.6 percent of gross domestic product.

The surplus comes as a surprise. Germany ended 2011 with a budget deficit of 0.5 percent and the Finance Ministry in Berlin has projected a similar deficit this year. But the country's labor market has remained strong even as many other countries in the euro zone have seen unemployment numbers spike. Revenues from wage and income tax rose in the first six months of this year by 6.3 percent, according to Thursday's report.

All Downhill from Here?

It remains to be seen whether the country will end up with a surplus for the entire year. The last time that happened was in 2007. Some experts believe that it can. "Unless everything falls apart, Germany could see a balanced budget for the year or even a surplus," Alexander Koch, an analyst with Unicredit, told Reuters.

Economic growth, however, remains largely stagnant. In the first three months of the year, the German economy grew by 0.5 percent against just 0.3 percent in the second quarter, as the Federal Statistical Office announced earlier this month. Many believe that the economy will enter negative growth territory this quarter. The country's exports, in particular, have been hit hard by the ongoing euro crisis and the important Ifo business climate index has fallen for the last three months, suggesting that business leaders in the country are pessimistic.

Still, Germany is in vastly better shape than many others in the euro zone. The French economy didn't grow at all in the second quarter while both Italy and Spain have seen significant drops in economic output.

Despite Thursday's positive report, Germany's central bank, the Bundesbank, has warned Berlin not to become too sanguine. "Faith in German state finances are an important factor for stability in the current crisis, but that faith is not unshakable," the Bundesbank wrote in its monthly report, released this week. Despite strong fundamentals, state and municipal budget deficits remain high.

cgh -- with wire reports


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