Germany- falling deficit and slowing growth

I agree, without private sector credit expansion (falling nominal savings rate) or rising exports these two go together over time:

German Economic Growth Will Likely Slow, Finance Ministry Says

By Brian Parkin

May 19 (Bloomberg) &#8212 The pace of Germany’s economic growth will probably slow by mid-year after jumping 1.5 percent in the first quarter, the Finance Ministry said in its monthly report. Economic growth “may be somewhat slower during the rest of the year,” the ministry said. While business confidence has declined, “it remains at a high level” and unemployment, at a 19-year low last month, will continue to profit from growing domestic demand, the ministry said. Germany’s Economy Ministry sees growth of 2.6 percent this year. Tax revenue for the federal government and states jumped 8.9 percent in the first quarter compared with last year, led by sales tax, the ministry said. Federal and state tax revenue in April grew 3.4 percent compared with a year ago, it said.

Bundesbank Says German Deficit May Fall Below 2% This Year

Brian Parkin and Jana Randow

May 20 (Bloomberg) &#8212 Tax revenue growth and spending cuts will probably help German Chancellor Angela Merkel’s government push down the budget deficit, setting an example for fiscal discipline in Europe, the Bundesbank said.

Germany’s budget shortfall could drop below 2 percent of gross domestic product this year, the Frankfurt-based central bank said in its monthly report published today.

“This notably mirrors a clear structural improvement, although the ongoing cyclical recovery is also making an important contribution,” the Bundesbank said.

The German government may be able to cut its spending gap to some 30 billion euros ($43 billion) from the 48 billion euros in the budget, the Bundesbank said. New tax forecasts that show revenue soaring over earlier estimates through 2014 may further help to push down the federal deficit beyond 2011, it said.

“A federal deficit of 30 billion euros seems achievable” this year, the Bundesbank said. “In subsequent years, this improved situation will be perpetuated,” boosting the chances of the government adhering to its target of balancing the federal budget by 2015, it said.

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9 Responses to Germany- falling deficit and slowing growth

  1. Adam2 says:

    Is the Euro just a purely credit-based system? Meaning, money is put into the economy only by financial institutions, since no country is really monetarily sovereign.

    So this means that since there is no federal authority of Euros, the money really is not fiat. So that means deficit financing of Euros does not work in the same way as in the USA with dollars, in that it is deflationary through “debt-deflation”, not inflationary as in “money printing”.

    Reply

    Gary Reply:

    @Adam2,

    I think deficit there still increases income to private sector – until they return the debt and the interest by collecting taxes from the same people. But if they return the debt by incurring more debt – it continues to supply more income.

    Reply

    WARREN MOSLER Reply:

    It’s like the US but with the Tsy very small and not every running a deficit. the US states would be in much the same position as the euro member nations

    Reply

    Good Habit Reply:

    There is no limit for the amount of Euros the ECB could create – and, therefore, no technical limit how much the Euro-governments could “borrow” (issue treasury bonds). There is just this treaty (called pact for stability) that actually is a political self constrained – it outlaws reason – because, it the others would act more reasonable than we do (that is – run a larger deficit), they could benefit (relative to us) – and that would be “unfair”. So, it’s just a voluntary agreement to ban reasonable behavior. And those who are “violating” the agreement will get punished – primarily by putting pressure on them to cut spending. This reduces economic growth, increases the deficit as share of GDP, and therefore, results in panic about impending default, which, then, drives up interest rates on bonds of those governments. So it’s just a agreement to force the weeker players to commit suicide and sell their citizens in to slavery, to (mostly German) banks.

    Reply

    roger erickson Reply:

    @Good Habit,

    > a voluntary agreement to ban reasonable behavior

    Well said. Should be a punchline in a wicked satire, not reality!

    However, it’s even worse, since it’s actually just a voluntary agreement to ban reasonable behavior relative to other EMU nations. Even the top of the EMU totem pole is sinking relative to other regions of the world economy. The PIIG slaves are simply connected to the German slaves, and the Germany slaves are connected to their banking slaves, and their G-banking slaves are connected to …. (you get the drift). So what the heck are the aspirations & goals?

    Just tactics, masquerading as goals? These are the same people that invented maneuver warfare & the German General Staff? They’ve nailed coherent operations for some applications, but can’t or won’t generalize outside the military? [no pun intended]

    Reply

    Save America Reply:

    and their G-banking slaves are connected to …. Dominic Strauss Khan?

    Look, Warren knows it is wise to look to the insiders, and do what they do, not what they say do. DSK had lotsa inside info, if I were in his shoes, and knew things were really bad, financial armageddon bad, I might say too, heck, the titanic is going down, grab the women and have some fun while you can still get some! I am being serious too, his recent actions speak to me of certain doom, no way a man in that kind of position with any SPECK of hope would do something so insane. Either that or he wouldn’t play ball with the powers that be and he was made an example of – in a straight jacket!

  2. Crake says:

    But doesn’t Germany’s unemployemt situation, not enough skilled workers, indicated its economy is near full employment and therefore deficit spending would tend to be inflationary since output cannot be increased much if any?

    Unless, Germany is willing to get foreign workers to come there, what can it do?

    Reply

    WARREN MOSLER Reply:

    I’d bet Germany is far from full employment. and I’ve been hearing that ‘not enough skilled workers’ thing since the 1950’s.

    Reply

  3. roger erickson says:

    but there are many who actually think this is appropriate, since it will lesson relative pressure on their failing “PIIGS”

    if the livestock aren’t growing, their choice is to either eat less or produce more
    (displaying true IMF fidelity, they’re choosing to stay with the maid that bed them) [never mind how or why]

    chivalry with a twist; bonded, not shaken

    Reply

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