Germany sticks to balanced budget policy | Business| Economy and finance news from a German perspective | DW | 01.07.2016
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Germany sticks to balanced budget policy

The German government has said Europe's powerhouse will not move away from its budgetary policy of zero fresh borrowing, Brexit or not. It's Berlin's way of sending a "signal of continuity," but not everyone is amused.

Government sources told Reuters on Friday that Germany intended to stick to a balanced budget policy over the next four years despite Britain's vote to leave the European Union and the economic uncertainty that might come with it in the medium term.

"In these times of uncertainty in many areas, the budget we will present to cabinet ministers next week represents reliability and continuity," a government representative said on terms of anonymity.

Current plans foresee Germany reducing its total public debt to less than 60 percent of gross domestic product (GDP) in 2020 for the first time since 2002. The nation would thus meet a criterion set out in the EU's Stability and Growth Pact.

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Just an obsession?

The cabinet is expected to approve final details of the 2017 budget and financing plans up to 2020 next Wednesday, but there's little doubt that keeping a balanced budget in the next couple of years will remain a top priority for Finance Minister Wolfgang Schäuble.

"This is no fetish," the government source said. "This is about sending a signal - after many years of issuing debt - that life without debt works."

Many economists both in Germany and abroad have argued that reaching a balanced budget should not be an aim in itself as it gravely underestimates the power of massive public investments with regard to job creation and hence income tax revenues.

Next year, Berlin plans to raise investment spending to 33.3 billion euros ($37.1 billion) from 31.5 billion euros in 2016 - not enough to achieve a tangible result, critics argue.

Others believe that the real costs of integrating so many new migrants cannot really be calculated right now, posing a threat to any current budget plans. Berlin has earmarked 77.5 billion euros up to 2020 to manage the influx of migrants, while insisting this will not stand in the way of its zero-borrowing policy.

hg/sri (Reuters, dpa)

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