Germany to double its borrowing

GERMANY will more than double net new borrowing next year and also increase public spending, in a new draft budget due to be approved on Wednesday.

The first budget of the new centre-right German government will see a record €85.8bn (£77.1bn) in new borrowing next year, and total new debt is expected to approach €100bn.

Spending will rise by around 10.5 per cent, as a result of rising social welfare costs and the weak economy, experiencing its worst recession since the Second World War.

Germany’s budget has to tackle rising unemployment and lower tax revenues, and the gaps in the budget that has caused.

The government’s draft 2010 budget bill says: “We will only be able to overcome the crisis sustainably and then return to a fiscal stabile path if we are successful in supporting the still fragile growth dynamic.”

A course of consolidation will begin from 2011, aiming to reduce the country’s structural deficit by €10bn each year, but that does not take into account €19.5bn in tax cuts planned for 2011.

Constitutionally, the structural deficit must be down to 0.35 per cent of GDP by 2016.

Public finances were not hit as hard this year as had been expected. Budget plans show that net new borrowing for 2009 will register as €37.5bn, not the €49.1bn previously planned for.

Angela Merkel’s government will present medium-term financial plans in May, after it receives tax estimates and the state of North-Rhine Westphalia holds its election.

Chancellor Merkel’s government must win the election to keep its majority in Germany’s upper house.