Germany plans limit on 2013 borrowing to reach balanced budget

BERLIN Fri Nov 9, 2012 11:22am GMT

BERLIN (Reuters) - A German parliamentary committee set a limit on new borrowing in 2013 on Friday that puts the euro zone's largest economy on track to honor its own demands for balanced budgets across the region.

The German parliament's budget committee set a cap for net new borrowing next year of 17.1 billion euros after a meeting that ended at 3 a.m., budget committee members told Reuters.

That is down from the 18.8 billion net new borrowing target first envisioned.

It would mean Chancellor Angela Merkel's center-right coalition will have a nearly balanced budget three years sooner than required by law by achieving a new budget deficit ceiling of no more than 0.35 percent of gross domestic product (GDP).

The federal government will reach the target faster than planned thanks to strong economic growth, lower unemployment and rising tax revenues.

"This is a great success and an important step towards achieving a structurally balanced budget and a debt-free budget," said Norbert Barthle, a senior parliamentary budget expert from Merkel's Christian Democrats (CDU).

Parliament will vote on the budget in two weeks' time.

The plans drew criticism from the main opposition Social Democrats (SPD), however. Its budget expert, Carsten Schneider, said there was no evidence the government was actually making efforts to cut back.

"This is simply a pre-election budget which is shamelessly making use of social insurance and their surplus funds," he said at a news conference.

Germany holds federal elections next September.

DOUBTS

Echoing Schneider, the budget expert for the Greens, Priska Hinz, said the government had failed to implement structural changes and was instead relying on social insurance, from which it was taking 5.5 billion euros, as well as a higher tax take and lower interest rates.

"The economy is already going downhill according to forecasts, so we need to adjust our financial planning accordingly," she said, adding that she doubted whether a structurally balanced budget could actually be achieved in 2014.

The budget approved by the committee foresees federal spending of 302 billion euros in 2013 with tax revenues of 260.6 billion euros. On top of those revenues are earnings from privatizations and dividends. The remaining gap will be financed with new borrowing.

The ruling coalition's goal is to achieve a structurally balanced budget by 2014. The federal government could then nevertheless still borrow funds if necessary for one-off expenditures, such as contributions to the European Stability Mechanism (ESM) bailout scheme.

But in principle the law requires the government to fully cover its recurring expenditures with income. (Reporting By Matthias Sobolewski; Writing by Erik Kirschbaum and Michelle Martin; Editing by Gareth Jones and Hugh Lawson)