Debt Relief Germany Celebrates Lack of Interest

A group of financial experts has predicted that Germany will see falling interest expenditure in the next few years, easing government budget concerns.
See? The economy's fine. Wolfgang Schäuble.

A report by members of a key German finance committee has found that interest payments on national debt will continue to fall, relieving pressure on public finances.

A working party of the Stability Council, a committee of federal and state-level experts that coordinates budgetary and financial planning among the different layers of German government, said that the estimated €57 billion ($71 billion) Germany will pay creditors this year is 13 percent less than in 2013. The unpublished report obtained by Handelsblatt also predicted that interest expenditures in 2015 will fall another five percent to €54 billion. While expenditures are expected to climb in the medium-term, the rise is likely to be so small that interest expenditures will be below today’s level in 2018. The predictions follow a period of sustained low interest rates.

With Germany currently experiencing lower tax receipts than anticipated, increased investments, wage rises and expensive civil servant pension costs, the report promises some relief for ministries battling with national and international debt regulations.

However, a separate group on the Stability Council, the new independent advisory board, which regularly reports on the condition of public finances, could well cast doubt on the working group's forecast. The advisory board, led by the economics professor Eckhard Janeba, was formed last year to meet new European Union regulations requiring an independent board to monitor budgetary rules in all member states.

A key point of criticism is likely to be the working party's very modest estimates on wage increases.

A key point of criticism is likely to be the working party's very modest estimates on wage increases. According to the report, Germany will spend four percent more on employees this year and three percent more next year. Then, starting in 2016, it forecasts annual increases of just 2.5 percent. But whether trade unions will accept this given the expected respectable growth of the economy is questionable.

Thanks to the assumption of long-term low interest rates, the report suggests that a €10 billion investment program announced by German Finance Minister Wolfgang Schäuble for 2016-18 will finance itself.

Mr. Schäuble, a member of the ruling center-right Christian Democratic Union, has rejected criticism in the German parliament that the country is investing too little. Research spending is increasing, for example, he said, and unfinished buildings all over Europe show that investment must not be seen only in terms of bricks and mortar.

Public investment this year, primarily thanks to the full coffers of many municipalities, is expected to soar by about ten percent. Experts then expect a further increase of two percent in 2015 to €47 billion. In the following three years, when Mr. Schäuble's package kicks in, it’s estimated €52.5 billion will be invested.

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Axel Schrinner writes about tax and finance policy for Handelsblatt. To contact the author: [email protected]