German Parliament Passes 2009 Budget, Backs Higher Borrowing

By Rainer Buergin

Nov. 28 (Bloomberg) -- Germany’s lower house of parliament, the Bundestag, authorized a federal budget for 2009 that will rely more on new borrowing than originally intended after the economic outlook for next year worsened.

To help finance spending of 290 billion euros ($372.5 billion), the government plans to borrow 18.5 billion euros, 8 billion euros more than projected previously. Planned tax revenue was lowered by 4.6 billion euros from the draft budget adopted by the cabinet in June.

As tax revenue falters, Finance Minister Peer Steinbrueck has to sell more bonds to pay for economic stimulus measures agreed on by Chancellor Angela Merkel‘s Cabinet. The borrowing plan may become obsolete as the recession deepens and Merkel and Steinbrueck face pressure to pump more money into the economy before national elections in September.

“This is purely an election-year budget,” Otto Fricke, a member of the opposition pro-business Free Democratic Party and chairman of the Bundestag’s budget committee, said in a debate before today’s vote, which the government won by 388 to 138. “You’re building castles in the air, you’re ignoring reality.”

The government has been forced to compromise its budget after drawing up a 50 billion-euro 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 includes expected investment by industry, will be spread over four fiscal years from 2009.

‘Dramatic’ Situation

Germany’s economic situation is “dramatic,” Economy Minister Michael Glos said in today’s Bundestag debate. A period of slow growth may “punch tremendous holes in public finances,” he said, at the same repeating his call for cuts to spur the economy.

German business confidence slumped to the lowest level in almost 16 years in November, the Munich-based Ifo institute said Nov. 24. Its confidence index, based on a survey of 7,000 executives, dropped to 85.8, the lowest since February 1993, from 90.2 in October.

Carmakers Volkswagen AG and Porsche SE said on Nov. 25 that they’ll suspend production at their hometown plants in coming weeks. VW will shutter its factory in Wolfsburg from Dec. 18 to Jan. 11 and Porsche will halt output in Stuttgart for seven days between now and the end of January.

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

Germany retained a “stable” outlook at Moody’s Investors Service on its Aaa government bond ratings, even though the financial crisis is straining the budget, the rating company said Nov. 24.

“Germany’s public debt payment capacity is strong and Moody’s anticipates no problems with regard to affordability or adverse debt dynamics, even with the impact of the economic slowdown likely to be felt on both sides of the government balance sheet,” said Moody’s analyst Alexander Kockerbeck.

To contact the reporter on this story: Rainer Buergin in Berlin at rbuergin1@bloomberg.net.