German 2009 Federal Net Debt to Grow as Crisis Stretches Budget

By Brian Parkin

Nov. 21 (Bloomberg) -- German Chancellor Angela Merkel's government will expand its net borrowing requirement next year as it stretches the budget to pay for programs to stabilize the economy.

Following a late-night session in parliament in Berlin, lawmakers agreed to raise next year's net federal borrowing, the gap between redeemed and new bonds, to 18.5 billion euros ($23 billion) from 10.5 billion euros forecast mid-year. The extra pushes overall spending by the government to 290 billion euros, according to a draft budget obtained by Bloomberg News.

Chancellor Angela Merkel has tried to stem debt growth as her budget expands to pay for emergency fiscal programs ranging from tax relief on new low-emission cars to bigger subsidies for energy efficient buildings. Some economists expect that net credit may expand beyond the revised budget as the crisis worsens.

Germany ``may be getting off relatively lightly if it can keep the deficit that low,'' Stefan Bielmeier, an economist with Deutsche Bank AG, said in a Nov. 19 interview. ``All signs point to a hard economic year for Germany, and this plays out on the budget.''

The government has been forced to compromise its budget after drawing up a 50 billion-euro economic stimulus package and signing off on a 500 billion-euro bank rescue plan, equivalent to a fifth of gross domestic product. The stimulus package, which combines expected investment by industry, will be spread over four fiscal years from 2009.

States' Deficit

Germany's states are also expected to run a deficit next year that may need to be plugged by increasing net debt, the Finance Ministry said this week. The expected composite spending gap of the three levels of government may mean Germany's public- sector deficit next year for the first time in four years.

Weaker tax revenue growth and extra outlays will together take the budget into the red by half a percentage point of gross domestic product in 2009, an election year, the ministry said.

Germany, which balanced public-sector income and outlays last year for the first time since 1969, is still better off than many European Union counterparts. Six EU members, including the U.K. and Ireland, will infringe EU deficit rules in 2009, the commission forecast on Nov. 3. Germany is not among them.

Under EU rules, budget deficits must stay below 3 percent of GDP, while a deficit of 0.5 points or below is classed as ``near to balanced.''

To contact the reporter on this story: Brian Parkin in Berlin at bparkin@bloomberg.net.