German debt ratio sinking despite higher state spending

[BERLIN] Solid growth and record employment will allow Germany to abide by EU debts rules sooner than forecast while still hiking overall state spending by five per cent each year, the Finance Ministry said on Wednesday.

European Union rules saying eurozone states should keep the ratio of debt to gross domestic product at 60 per cent or less have been broken for years by Germany and other countries.

However, the German cabinet has agreed a new stability programme which foresees public debt in Europe's largest economy falling to 59.5 per cent of GDP in 2020.

Last year Berlin had said it expected the state debt pile to fall below the 60 per cent threshold only by 2023.

Like other EU countries, the German government has to provide the European Commission with a stability programme once a year.

The new programme, which also includes a goal of no net new debt until 2020 despite higher state spending, shows the ratio will likely fall to 68.5 per cent this year from 71.2 per cent in 2015.

Public debt in Germany shot up due to the global financial crisis and resulting economic slump at the end of the last decade. Overall the federal government, states, communities and social funds have built up around 2.2 trillion euros in debt.

As GDP is now growing quicker than debt, the government debt ratio is falling. In 2014, Germany achieved a balanced budget for the first time since 1969.

REUTERS