Germany to balance finances sooner than expected

Germany, Europe's powerhouse economy, said on Monday it will balance its public finances faster than expected, slashing this year's estimated budget deficit to 1.5 percent from 2.5 percent and downplaying fears of a new recession. As eurozone partners work on ever tighter austerity plans to balance their books, Germany is well ahead -- it had a 2010 deficit of 3.3 percent, just above the EU ceiling of 3.0 percent despite having spent heavily on stimulus programmes to offset the worst recession since 1945. "The positive development this year will continue until 2015, which will allow us to balance the accounts in 2014," the ministry said in a monthly report published on its Internet site. Finance Minister Wolfgang Schaeuble told Deutschlandfunk radio meanwhile that there were "no signs of a recession in Germany," where actitivity ground nearly to a halt in the second quarter. Schaeuble insisted that "there is no reason to worry," and reiterated a forecast for 2011 growth of around 3.0 percent. The German central bank also maintained its 2011 forecast for 3.0 percent growth in its monthly report for August. Germany previously aimed to balance its finances by 2016 under a law requiring the government to ensure that it does not overspend. The public deficit -- the shortfall between revenues and spending -- includes regional state budgets along with those of municipalities and the national social security system. Under the terms of the EU's Stability and Growth Pact, governments are not supposed to exceed a public deficit of 3.0 percent of Gross Domestic Product and must work towards a balance or even surplus in times of economic growth. Germany's total accumulated debt, meanwhile, "will fall between now and the end of the year to 80 percent of GDP and will thus be about three percentage points lower than in the previous year," the ministry's report said. In 2015, Germany forecasts public debt equivalent to 71 percent of GDP, down from 2010's 83.2 percent -- still well above the EU limit of 60 percent but positive compared with, for example, Italy's 120 percent. Germany, which underwrites a large share of the eurozone rescue packages, is getting its own finances in order on the back what up to now has been strong growth that has helped cut unemployment. The narrowing public deficit might give the conservative-liberal government coalition a chance to implement tax cuts in time for elections in 2013. That could also help boost domestic consumption which appears threatened by constant discussion of bailout packages for partner countries on the eurozone's southern rim. "Headlines urging readers to 'save your money' in parts of the German weekend press illustrate the confidence shock," Berenberg Bank chief economist Holger Schmieding said. "Even people with comfortable real incomes may raise their savings rate and curtail spending for a while," he warned. Meanwhile Greece struggles to avoid a disastrous sovereign default, Italy is trying not be become the next country targetted by so-called sovereign "bond vigilantes" and Britain, France and Ireland are trying to tackle huge deficits. In the United States, efforts to get to grips with its unprecedented levels of public debt are hobbled by partisan interests in Congress. "We have a generalised problem. We have too high public sector debt and too high deficits everywhere," Finance Minister said. In July, the news magazine Spiegel said Berlin deserved the title "best in class" but efforts to cut the deficit further will run up against pressure from contributions Germany will have to make to various eurozone rescue funds. Germany will be the biggest creditor to the planned European Stability Mechanism, with an estimated payment of 4.3 billion euros ($6.2 billion) per year. Schaeuble stressed German opposition to calls for a common "Eurobond" backed by all of the bloc's 17 members, which would drive up the cost of borrowing for Germany and other countries with top credit ratings but make it easier for heavily indebted countries to obtain financing. Chancellor Angela Merkel also rejected eurobonds over the weekend, alongside German Economy Minister Philipp Roesler, EU Council president Herman van Rompuy and Dutch Finance Minister Jan de Jager. Among other objections, they noted it would require changes to fundamental EU texts, a lengthy process in the best of times, to create such instruments.