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18 April 2018

Public Finances

Re­port on Ger­many’s pub­lic fi­nances sent to EU: Bud­get sur­plus­es amid a strong up­turn

On 18 April 2018, the federal cabinet adopted the German Stability Programme for 2018. Germany will now send the programme to the European Commission and the ECOFIN Council, thereby fulfilling its obligations under EU rules to submit its medium-term fiscal plans to Brussels by the end of April each year. In the Stability Programme, Germany reports on its compliance with the requirements of the Stability and Growth Pact.

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The German Stability Programme for 2018 makes clear that Germany’s fiscal policy, thanks to its emphasis on sound finances, is supporting both the economic upturn and stability in Europe. In 2017, the general government budget – which encompasses the budgets of the Federation, Länder, local authorities and social security funds – also complied in full with the EU criteria.

Last year, German public budgets generated a surplus of 1.1% of gross domestic product (GDP), with the Länder and local authorities in particular posting exceptionally large surpluses. Assuming the current upswing persists, the general government budget is likely to continue to post surpluses in the coming years. Therefore, in its projections for public budgets, the federal government is working on the assumption that the debt ratio will continue to decline towards 60% of GDP, the upper limit under the Maastricht Treaty.

The current strong upturn in Germany has created favourable conditions for Germany’s fiscal policy goals. The German economy is currently experiencing its longest upswing since the 1980s. Since 2014, the economy has been growing faster than potential output. In particular, the robust domestic economy is helping to drive this trend. The number of jobs requiring social security contributions is increasing every year, unemployment is at its lowest level since German reunification, and wages, salaries and pensions are also rising.

Despite the exceptionally good conditions for fiscal policy, it is important not to overlook structural changes that have already occurred, or which are foreseeable. Fiscal policy must address a range of challenges in order to safeguard the current positive economic trend, to maintain Germany’s international competitiveness, and to ensure the long-term sustainability of public finances. These are the goals that the federal government has set itself.

The updated 2018 Stability Programme constitutes a basis for the federal government’s fiscal planning. It does not include the fiscal impact of the coalition government’s planned priority measures. Once approved by the federal government, an updated projection on the basis of the draft 2018 budget will be sent to the EU.

2017 2018 2019 2020 2021
Real GDP (% change yoy)

2.2

2.4

1.9

1.3

1.3

Actual balance, excluding measures (% of GDP)

1.1

1

Structural balance, excluding measures (% of GDP)

1.3

½

¾

1

Note: Figures for the projection-period years are rounded to one quarter of a percentage point of GDP.