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Germany announces spending cuts

Summary

9 July 2010

The German cabinet has agreed a four-year plan of budget cuts.

The spending reduction over the next four years reflects a recent change to the country's constitution, which requires the government to borrow less.

Reporter:

Andrew Walker

Report

Germany, in common with most other developed countries, does have a problem with its public finances. Back in 2008 there was a small surplus, but last year the government had to borrow the equivalent of over 3% of annual national income.

Its accumulated debt burden is also rising. So the case for taking some action at some time to stabilise the public finances is strong.

But Germany's problem is much milder than many other countries. There are concerns that budget cuts in many countries at the same time could undermine an economic recovery that, in the developed countries at least, is not strong.

In addition, Germany has a surplus in its foreign trade, quite a large one. It sells more than it buys from abroad. It has long been argued by the International Monetary Fund and by the US that countries with trade surpluses should do more to provide a market for others, and German austerity could actually mean less spending on foreign goods.

On the other hand it is possible that widespread efforts to improve government finances might help the global economy by boosting business and consumer confidence. But there are risks either way, and the danger of a new lurch into recession in the developed world cannot be dismissed.

Andrew Walker, BBC News, Berlin