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Profligate Germany

Uwe HeßlerMarch 12, 2012

The German government failed miserably in its plan to slash expenditures by 11 billion euros ($14.3 billion) in 2011, an economic research group said. The economic boom helped it steer clear of dire financial straits.

https://p.dw.com/p/14JD1
piggy bank with euro notes
Image: picture-alliance/dpa

Last year, the government achieved less than half of the budget savings it had agreed on under a 2010 austerity plan, the German news magazine "Spiegel" wrote on Monday, quoting from a study carried out by the Institute for the German Economy (IW).

According to the figures released by the Cologne-based institute, Berlin introduced budget cuts totaling 4.7 billion euros in 2011 – substantially less than the 11.2 billion euros envisaged.

For 2012, the government also appeared on track to "miss its target," the researchers said, as it was lagging behind a timetable for the implementation of some19.1 billion euros in cuts.

"The government needs to take its savings policy more seriously. It should not postpone budget reduction until after the next general elections," said Hubertus Pellengahr, head of the business lobby group INSM, which commissioned the study.

Growth bailout

The government was effectively bailed out by "growing employment" and "low interest rates", said the IW institute.

Enjoying a 7.9 percent jump in tax revenues to 527 billion euros in 2011, Finance Minister Wolfgang Schäuble needed to raise "only" 17.3 billion euros in fresh debt to balance the budget.

That was considerably less than the 48.4 billion euros originally planned under the 2011 austerity budget aimed at bolstering the potential fallout of the financial crisis.

"Budget consolidation wasn't achieved through fewer expenditures, but through growing income from a booming economy," the IW criticized.

The opposition Social Democratic Party (SPD) echoed the criticism, arguing that the "meager savings" showed Chancellor Angela Merkel was unable to keep her cabinet "under control."

"Merkel dictates sweeping austerity to our European partners, but fails to save in her own budget," Thomas Oppermann, SPD budget expert, told "Spiegel" news magazine.

Historic outlook

In spite of the 2011 savings shortfall, the IW researchers said they still saw the government "well on track" for a legislated debt ceiling of 0.35 percent of GDP.

Legislation adopted in 2009 forces the central government to meet this target by 2016, while regional governments have time to do so until 2020.

"If the government sticks with the planned budget cuts, it can reach the 0.35 structural deficit target already by 2013," Hubertus Pellengahr said, adding that Wolfgang Schäuble could then become "the first German Finance Minister in 40 years to start reducing the nation's mountain of debt."

uhe/gb (Reuters, dpa)