Scrimping and saving

The German finance minister says he will come up with a plan to start reducing Germany's national debt in the course of 2010. Wolfgang Schaeuble told the mass-circulation tabloid Bild that Germany must reduce its deficit considerably, even if it's a challenge.

"We must reduce the structural deficit, starting in 2011, by around 10 billion euros ($14 billion) per year," he said. "That will be tough, but we have to do it."

Schaeuble promised to draw up a plan to achieve his goal for six consecutive years by July of next year; however, last week he admitted that he wasn't sure where to begin making the cuts.

Germany's national debt is currently 1,725 billion euros ($2,470 billion), and it's rising by 4,439 Euros per second. That total figure equates to just over 21,000 euros of debt for every German citizen.

To make matters worse, ongoing government spending in a bid to fend off the recent recession means Germany is set to dig deeper than ever before in 2010. Last week, Chancellor Angela Merkel's cabinet gave the green light to a 2010 budget proposal that foresees borrowing a record 85.8 billion euros over the course of the year.

Balancing the books

Meanwhile, Chancellor Merkel's new centre-right coalition last week succeeded in delivering one of its key election promises, a heavily disputed 8.5 billion euro tax relief package, which would take effect in 2011.

Many prominent members of Merkel's Christian Democrat party have already voiced their doubts about the sustainability of these tax breaks at a time of record national borrowing.

"Anybody who's crying out for a tax reform package in 2011 needs to also explain how we can finance it," Michael Meister, deputy leader of the Christian Democrat's parliamentary group, told the Handelsblatt business daily.

"Further tax relief packages, which will cost the state 10 billion euros, are hardly conducive to our current need to save money."

Germany is one of a slew of EU economies under pressure from Brussels to bring their annual borrowing back in line with the EU's prescribed limit of three per cent of gross domestic product. Now, Finance Minister Wolfgang Schaeuble and his team must find a way to make it happen.

msh/AFP/AP

Editor: Michael Lawton