Germany to trim spending as orders increase
By Quentin Peel in Berlin and Ralph Atkins in Frankfurt
March 5 2010 17:19
Germany’s reliance on manufacturing to spur economic growth was highlighted on Friday by an exceptional spurt in industrial orders, reported as parliamentarians showed fiscal discipline by trimming €5.6bn from this year’s federal budget.
Industrial orders leapt by 4.3 per cent in January, according to the Berlin economics ministry. It was the largest monthly increase since June 2007, underlining how German manufacturing is powering the recovery in Europe’s largest economy – helped by the weaker euro.
However, the rebound, which followed a 1.6 per cent fall in orders in December, will not ease fears about the fragility of the eurozone’s economic recovery. Although domestic orders showed the strongest growth in January, that could have reflected knock-on effects of foreign-generated business.
Eurozone service companies, meanwhile, have been hit by weak domestic demand, caused by rises in unemployment and the withdrawal of government emergency stimulus measures.
“Manufacturing was never our concern for Germany or the euro area as a whole,” said Gilles Moec of Deutsche Bank.
The cuts in the German federal budget, agreed after a 14-hour session of the Bundestag budget committee, will mostly affect spending on welfare and unemployment benefits, and on interest payments on government debt.
The action could trigger complaints from countries that have been urging Germany to increase public spending in order to stimulate domestic demand and help the recovery of the rest of the eurozone.
Members of the ruling centre-right coalition pushed through the cuts, which will trim spending from €325.4bn ($443.5bn, £294.5bn) to €319.5bn, and reduce the forecast deficit for 2010 from €85.8bn to €80.2bn.
The original budget was tabled by Wolfgang Schäuble, the finance minister, and proposed the highest deficit ever recorded in absolute terms – more than double the previous peak figure of €40bn.
It is rare for parliamentarians in Germany to attempt to reduce federal spending, rather than try to increase budget lines for their favourite projects.
However, members of both the majority Christian Democratic Union and minority Free Democratic Party in the coalition have argued that Germany needed to send a signal to the rest of Europe – particularly in light of the ongoing Greek economic crisis and pressure on the euro.
They said the gradual recovery of the German economy, and the continuing relatively low level of unemployment, made the cuts possible.
The spending figures were opposed by Social Democrats and Greens, but confirmation by the full Bundestag on March 19 seems certain.
Financial Times