Germany is set to balance its federal budget by 2014, Finance Minister Wolfgang Schaeuble said as Berlin urges other countries to slash deficits as a response to the eurozone debt crisis.
In an opinion article for the Tagesspiegel a.m. Sonntag, Schaeuble wrote: “Germany will already this year lower its deficit to below 0.5 percent of GDP and from 2014 have a balanced budget again.”
“Reducing debt is one of the most important political tasks both in Germany and in many other countries. The German people are rightly demanding this with great force,” added the minister.
The deficit would be “nearly balanced” already in 2013, Schaeuble pledged.
Germany has previously committed to balancing its budget by 2016.
Led by Germany, the euro zone has embarked on a program of slashing deficits as a response to the three-year debt crisis that has tipped many of the 17-nation bloc into crippling recessions.
Schaeuble said 25 of the 27 European Union countries had signed up to a “fiscal compact” that sets limits on new spending, with fines for nations that do not comply.
Only Britain and the Czech Republic refused to sign up to the Germany-inspired treaty that Chancellor Angela Merkel believes is the only way for the eurozone to escape its deep malaise.
Last year, the German public deficit stood at one percent of output, still well below the three-percent ceiling imposed by the European Union.
Germany has come under fire for concentrating too hard on reducing its deficit and not enough on promoting growth that could help its eurozone trading partners.
But with the German economy, until now proving largely resistant to the crisis, Schaeuble rejected such claims.
“It is important for the European and the world economy that the German economic motor does not sputter or stall. The trend in recent years in Germany has shown that our policy of growth-friendly consolidation is working,” he wrote.
European Central Bank Chief Mario Draghi, meanwhile, backed Schaeuble’s proposal to radically expand the powers of the European Union’s monetary affairs commissioner giving Brussels greater control over member states’ budgets.
In an interview with German magazine Der Spiegel published four days after defending his bond-purchase program in the country’s lower house of parliament, Draghi also said he did not expect his Outright Monetary Transactions (OMT) plan to cost the taxpayer money.
Schaeuble said earlier this month that the EU needed a commissioner who wielded power over member states’ budgets together with reform of the European Parliament’s decision-making process, changes he said could help ease the debt crisis.
The commissioner, an expansion of the current monetary and economic affairs commissioner, should have the authority to veto budgets if they broke deficit rules, he argued, urging far-reaching reform and greater European integration.
Draghi’s public support for the proposals is a boost for Schaeuble’s plan but such reform would require changes to EU treaties, something that would need Britain — which has been skeptical of greater European integration — to acquiesce to unless a separate euro zone treaty is drawn up.
“I explicitly support this proposal,” Draghi told Der Spiegel magazine published on Sunday.
“I am certain: if we want to re-establish trust in the euro zone, countries must pass a part of their sovereignty to the European level,” Draghi said.
Schaeuble wants the role of the economic and monetary affairs commissioner, dubbed the “currency commissioner” in Germany, to be modelled along the lines of the EU’s competition commissioner, the only commissioner who can make legally-binding decisions. His plan has received a mixed welcome.
Addressing fears that the ECB’s decision to buy an unlimited amount of debt from struggling member states could lead to inflation and cost taxpayers money, Draghi said.
“To the contrary: so far we have even made profits from our bond purchases, which then went to national central banks,” Draghi said, and added this would remain the case of governments in southern Europe continued their reforms of recent months.
“One thing is clear: if the governments in southern Europe continue with the successful implementation of policy reforms seen in the last few months, German taxpayers will make a profit from our purchases. There is no better protection against the euro crisis than successful structural reforms in southern Europe.”
Draghi defended his bond-buying plan in front of Bundestag members, telling skeptical German lawmakers that fears of illegal government funding or higher inflation were misplaced.
The German central bank, the Bundesbank, has denounced his OMT plan as tantamount to printing money to finance governments.
It was adapted from the ECB’s discontinued bond-purchasing program, the Securities Markets Program, to stop governments from reneging on promises to implement reforms.
Draghi said he wished disagreements with Bundesbank chief Jens Weidmann — such as over the OMT plan — could be handled more privately.
“I would like some discussions to take place in a more controlled fashion,” Draghi said, saying he and Weidmann understood each other well.
“We have the same goal, our differences of opinion on the right methods are not un-bridgeable.”