Wednesday June 24, 08:00 PM
Germany to take on record debt
By Richard Carter
BERLIN (AFP) - Germany's finance minister said Wednesday Berlin would break EU budget rules until 2013 or 2014, unveiling a record level of borrowing as the country reels from its worst recession in decades.
Peer Steinbrueck said Europe's biggest economy would be forced to take on 310 billion euros (430 billion dollars) more debt over the period 2009-2013 -- the highest amount since the Federal Republic was founded 60 years ago.
"Based on the current economic forecasts, we will not be below the upper deficit level until 2013 or 2014," Steinbrueck told the Frankfurter Allgemeine Zeitung daily in an interview.
According to EU rules, member state public deficits should not breach 3.0 percent of gross domestic product (GDP), while a country's public debt is not to exceed 60 percent of GDP.
Steinbrueck said Germany's deficit levels would be "around 4.0 percent" this year, rising to "just below 6.0" percent in 2010 -- in line with the commission's own forecasts.
He said he therefore expected Brussels to begin disciplinary procedures against Germany at the end of this year or the beginning of next year.
However, he said that most countries in the 27-nation EU are also expected to break the rules as they battle against the global economic crisis.
According to European Commission figures, 20 member states will surpass the 3.0-percent upper limit this year.
And Steinbrueck pointed to the situation in Ireland, whose public deficit has soared to as much as 14 percent, and Britain, where the figure is between 10 and 12 percent.
The minister justified Germany's growing debt mountain by saying that his export-driven country was suffering more than other top economies in the world.
"The recession is hitting Germany harder than we expected," he later told a news conference.
"No other country is so directly ... hit by what is happening in the global economy," he said, adding: "Some 45 percent of our GDP is based on external trade, compared to 10 to 12 percent for the United States and 20 to 25 percent in Japan."
He also said that new borrowing next year would almost double to 86.1 billion euros, possibly rising to as much as 100 billion euros when measures designed to fight the crisis are included.
The budget, agreed in cabinet earlier Wednesday, is likely to be amended by a new government after German elections on September 27.
Steinbrueck insisted that Germany would return to a path of fiscal responsibility after the recession had passed.
"After the crisis, Germany must go back to an austerity path," he said.
This was important, not just to boost confidence among citizens, but also to maintain Germany's "triple A" rating in the financial markets.
If Germany's rating were to be downgraded, the cost of financing its debt mountain would be pushed up "enormously," he said.
"Trust in the Federal Republic of Germany must not be broken by a credit rating change," he said.
Steinbrueck also said that measures taken by central banks to pump money into the economy have given rise to "medium-term inflation risks that must be taken seriously."
Nevertheless, he praised the work of the European Central Bank, which, he said, "is now doing what is right and necessary to avoid a credit crunch."
He added that banks in Germany should not complain of a credit squeeze when the European Central Bank has been providing unlimited cash at record low rates.
Earlier Wednesday, the ECB lent eurozone banks a record 442 billion euros at an interest rate of one percent for one year in a further bid to ease credit conditions for businesses and households.
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