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German budget plans

June 26, 2013

Germany’s center-right government has drafted its budget for next year envisaging reduced spending, higher revenues and substantially lower debt. For 2015, Chancellor Merkel even seeks to carve out a budget surplus.

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The center-right governing coalition of conservative Chancellor Angela Merkel, on Wednesday, gave the go-ahead to government expenditures totaling 295.4 billion euros ($385.3 billion) next year - about 15 billion euros less than the government in Berlin aims to spend this year.

The reduction will come in spite of a projected revenue increase of 268.7 billion euros in 2014. This is because German finance Minister Wolfgang Schäuble seeks to slash the budget deficit from 25.1 billion euros this year to just 6.2 billion euros in 2014. Adjusted for one-off effects and seasonal variations in economic growth, the finance minister even hopes to drive the so-called structural deficit down to zero next year.

By reducing the budget deficit, Berlin expects to spend five billion euros less on interest paid on its debt. German debt servicing already fell to 30 billion euros last year, as borrowing costs slumped substantially for the government due to Germany's safe-haven investment status in the eurozone debt crisis. Ten years ago, Berlin still needed to pay interest to the tune of 40 billion euros even though public debt was substantially lower.

Schäuble said he expected interest payments to rise slightly from historic lows last year, adding, however, that provisions had been made for that in the 2014 budget plan.

On Wednesday, Chancellor Angela Merkel's conservative CDU/CSU union, as well as its junior coalition partner, the liberal Free Democrats (FDP), also agreed on a three-year financial plan. The proposal seeks to consolidate the budget further until 2017, envisaging a small surplus of 200 million euros in 2015, which is planned to grow to 5.2 billion euros and 9.6 billion euros in 2016 and 2017, respectively

After a drop in government spending next year, the plan is for expenditures to rise again in the following years to reach a total of 317.7 billion euros in 2017. Finance Minister Schäuble said that he wanted the surpluses in the years ahead to go primarily towards paying off Germany's more than 2-trillion euro debt.

Schäuble also said that his debt reduction plans were in no contradiction to a set of conservative election promises, which included higher pension payments for mothers as well as an increase in child benefits. Germany is due to hold general elections in September this year.

uhe/kms (dpa, AFP)