Germany reveals €310bn loan plan

GERMAN FINANCE minister Peer Steinbrück presented a “dramatic” budget in Berlin yesterday, requiring €310 billion of fresh borrowing in the next four years to prop up the recession-hit economy.

The fresh borrowing – a record in post-war Germany – puts pressure on chancellor Angela Merkel’s Christian Democrats (CDU), days before the party presents an election programme expected to promise tax cuts.

The plan adopted by the cabinet in Berlin yesterday calls for an €86.1 billion debt in 2010 alone, the largest-ever hole in a post-war German budget.

When the final cost of Germany’s economic stimulus package is collated, new borrowing in 2010 may even top €100 billion.

Next year, Germany’s public deficit will rise to 6 per cent of GDP, well beyond the 3 per cent ceiling in the euro-zone rules.

Mr Steinbrück said yesterday that, although Germany faced “mammoth” fiscal challenges, the 2010 deficit was “unique, and hopefully will remain unique”.

Berlin would be in a position to meet the euro-zone rules by 2013 at the earliest, he said.

“Despite the exceptional crisis, we are making very clear that a return to the path of consolidation is urgently needed when the crisis is over,” said Mr Steinbrück. With a nod to Germany’s AAA reputation as euro-zone benchmark, he said: “Trust in Germany must not be broken by a change in credit rating.”

Switching to election mode, the Social Democrat finance minister said he found it “reckless” to promise tax cuts in the current fiscal environment.

That is exactly what Dr Merkel’s Christian Democrats are proposing if they win next September’s general election.

A new opinion poll yesterday showed the CDU/Christian Social Union alliance with 36 per cent and its likely coalition partner, the liberal FDP, with 15 per cent – enough for an absolute majority in parliament.