Acting on the declaration by the G20 to reduce deficits, Wolfgang Schaeuble, Germany’s finance minister, has proposed cuts in spending that are intended to cut the country’s deficit by 40% over the next five years.
Energy and the armed forces will be hit hardest in the quest to save some 137 billion euros ($172 billion), and there is skepticism that the cuts will achieve all they are intended to do. Germany’s economy has been showing signs of recovery, but whether the deficit can be shrunk from a Finance Ministry report-projected 355.4 billion euros to 218.5 billion remains to be seen. The plan is based on projected economic growth of 1-1.5%.
A 2009 constitutional amendment, the “debt brake,” compels Germany to reduce its debt, at a record since World War II, so that public debt is no more than 3% of GDP by 2013 and the federal debt no more than 0.35% by 2016.
Chancellor Angela Merkel’s government has approved the cuts, which reduce borrowing this year from 80 billion euros to 65 billion euros, and next year to 57.5 billion euros from 76.6 billion euros. Similar heavy reductions are planned each year; 2012′s borrowing is expected to be 40 billion euros instead of 69 billion euros, 2013′s will drop from 64.4 billion euros to 31.6 billion euros, and 2014′s is expected to be 24 billion euros, down from a projected 64.4 billion euros in the previous plan.
The budget will be presented formally by Schaeuble on Wednesday, July 7, in Berlin.