BERLIN (Reuters) - The German government trumpeted its finances on Wednesday as a model for Europe and a source of envy across the globe, as it presented a budget plan which foresees new borrowing shrinking next year to its lowest level in four decades.
The long-term plan approved by Chancellor Angela Merkel’s cabinet is a testament to Germany’s economic strength during the euro zone debt crisis but underscores the deep divide in Europe, where many countries are still struggling to bring down swollen debt and deficits.
According to figures presented by Finance Minister Wolfgang Schaeuble and Economy Minister Philipp Roesler, net new borrowing would sink to 6.4 billion euros and Germany’s structural deficit would be totally eliminated in 2014.
From 2015, Germany would take on no new debt. The following year it would run a budget surplus of 5 billion euros.
“With all modesty, this is a result of historic proportions,” Roesler told reporters.
“The lesson from the sovereign debt crisis is that solid finances are essential. Thanks to this approach Germany is in the vanguard in Europe. Our success with a policy of growth-oriented consolidation is the envy of the world.”
Schaeuble used the news conference to push back against accusations Berlin has insisted on too much austerity in southern European countries like Greece and Spain, hailing the budget plan as proof that there was no contradiction between consolidation and growth.
The reality is less clearcut.
Germany has had success in bringing down its deficit not by reining in spending, which has stayed relatively stable at 300 billion euros since 2010, but because of soaring tax revenues - linked to strong growth and record low unemployment - and rock-bottom interest rates resulting from its safe-haven status during the crisis.
“We did have rising tax revenues, but we didn’t use them to increase spending,” Schaeuble said. “Low interest rates are a sign of confidence in the solidity of the German government. We don’t have to apologise for this.”
The German budget figures were presented a day before European Union leaders are due to meet in Brussels, with soaring unemployment and biting austerity at the top of the agenda.
Outside of Germany, the euro crisis has had a devastating impact, with 26 million people unemployed in the EU, including around one in every two young people in Greece, Spain and parts of Italy and Portugal.
In a sign of just how serious the situation has become, U.S. intelligence chief James Clapper took the unusual step of commenting on Europe’s problems in testimony to lawmakers in Washington on Tuesday, saying austerity posed a risk to social stability.
At the summit, leaders are expected to discuss budget polices, amid signs that France and Spain will be given more time to meet deficit-cutting goals.
In Germany, the economy has benefited from labour market reforms introduced a decade ago that have helped pushed the unemployment rate down to its lowest level since reunification in 1990.
But there are signs the crisis is taking its toll on the continent’s biggest economy. After growing by 4.2 percent in 2010 and 3.0 percent in 2011, German gross domestic product (GDP) increased by just 0.7 percent last year, weighed down by a sharp contraction in the fourth quarter.
Berlin is forecasting growth of just 0.4 percent this year, although Roesler described this on Wednesday as a “conservative” estimate.
Writing by Noah Barkin; Editing by John Stonestreet