Schaeuble plan aims to end rising federal debt

German finance minister Wolfgang Schaeuble presented a five-year fiscal plan that would end almost half a century of rising federal debt by forgoing net new borrowing starting in 2015.

Net new borrowing will drop to €6.5bn this year, the lowest in 40 years. From 2015, the budget will avoid net credit for the first time since 1969, he said. “This isn’t trickery but the result of consolidating the budget every year since 2010.”

Government spending can rise when outlays on debt management decline, he said.

Balancing the budget of Europe’s biggest economy was a plank in chancellor Angela Merkel’s successful re-election campaign last year, meshing with her insistence on government austerity programmes in eurozone nations that received financial aid in the debt crisis that spread from Greece in 2010.

German economic growth will increase to 1.8% this year from 0.4% in 2013, according to the Finance Ministry projections. That may push up tax income and add credence to Schaeuble’s math underpinning the balanced budget, which the opposition says is too optimistic.

According to the 2014-2018 plan, Germany’s debt ratio, a relation of debt to gross domestic product, will decline 3 percentage points this year to 75%. By 2017, the ratio will drop below 70%, Schaeuble said. Federal debt stood at €1.27trn last year, compared with 1.28trn in 2012.

The budget goals “are based on a lot of sunny-side assumptions about the economy and that’s risky,” Sven-Christian Kindler, the opposition Greens’ budget spokesman in parliament, said in an emailed statement yesterday.

Schaeuble’s calculations take little account of possible external shocks such as natural disasters or the turmoil in Ukraine that may push up borrowing.

The Ukraine crisis, by potentially reducing trade with Russia, may trim as many as 0.2 percentage points off global growth, the BGA German exporters federation said in a report released in Berlin. Repairing flood damage in central Germany last year added €8bn in new net borrowing to the budget.

Schaeuble said Ukraine’s impact should not be overestimated, calling the risk to the German economy “manageable”.