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Germany

German public debt mountain melting as bad bank liabilities are contained

Germany’s overall national debt fell last year as state authorities on all levels enjoyed rising tax revenue. Moreover, toxic assets stemming from the 2008 financial crisis were significantly reduced.

Germany's sovereign debt shrank 1.4 percent, or 28 billion euros ($38.5 billion), last year, the country's statistics office Destatis announced Thursday.

By December 31, 2013, the total of Germany's public debt owed by the central government as well as regional and municipal authorities stood at 2.043 trillion euros - equivalent to about 78 percent of the country's annual gross domestic product (GDP), Destatis said.

The figure is still higher than allowed under EU rules which seek to keep national debt burdens of its 28 members down to 60 percent of GDP. However, Germany was one of the few EU countries able to reduce its sovereign debt last year. Greece's debt, for example, spiraled to 177 percent of GDP, while Italy owed debt amounting to 132 percent of GDP to creditors in 2013.

Germany's debt mountain melted - at least a little - primarily thanks to a reduction of toxic assets stored in the two state-owned bad banks, FMS Wertmanagement and Erste Abwicklungsanstalt (EAA). In the wake of the 2008 financial crisis, the German state acquired these assets from nationalized mortgage lender Hypo Real Estate and state-owned bank WestLB as part of a government bailout for the two banks.

“The two [bad] banks were able to continue reducing their portfolios, thus lowering their balance sheet debt,” the statisticians noted in a statement.

German tax revenue to increase in 2014

The biggest chunk of German debt was owed by the central government with a total of 1.281 trillion euros, Destatis said. The debt of the 16 regional states and that of German municipalities amounted to 629 billion euros and 134 billion euros respectively, it added.

According to finance experts, Germany's sovereign debt might fall below the 2-trillion-euro mark next year. Jens Boysen-Hogrefe, economist with the Institute for the World Economy (IfW) in Kiel, Germany, said balanced public budgets, coupled with a further reduction in state-held toxic assets, might even cause German sovereign debt to drop below the EU's debt limit of 60 percent of GDP by 2020.

This, however, was contingent on further economic growth and government efforts to keep the national budget balanced, he told Reuters news agency.

uhe/msh (Reuters, Destatis)

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