Merkel praises growth-friendly budget policies

Growth-friendly budget policies such as higher investment in innovation, research and transport were crucial to helping Germany cut its debt Chancellor Angela Merkel said on Saturday. Next year, the German government plans to refrain from taking on any new debt for the first time since 1969. In her weekly podcast, Merkel said this would take "a huge amount of effort" but added it could be done by investing in the future, which would boost growth and so help to consolidate the budget.
"That means that on the one hand we save in the sense that we don't increase public spending but at the same time we're focussing on things like increasing investment in transport, innovation and research," she said. Merkel said German spending on research would remain at 3 percent of gross domestic product, so if GDP increases, research spending should rise at the same rate. Other areas of spending would, however, be frozen.
"And in this way, we can ensure that even though total public expenditure remains the same, we'll achieve more: if there is growth, then of course the overall debt burden will fall." Merkel said that was how Germany, which has been an ardent defender of budget austerity under her leadership, had cut its debt-to-GDP ratio to 78.5 percent from 81 percent in recent years. She said the aim was to cut it to 70 percent by 2017.
The European Union's Stability and Growth Pact limits public debt to 60 percent of GDP. But existing EU rules allow for slower budget consolidation if a country makes investments or undertakes structural reforms. Euro zone finance ministers agreed this week not to change the Stability and Growth Pact. They said, however, the EU could be flexible about the time members need to fix their budgets if they reform to boost growth, though it must first have proof such efforts are taking place.
Economy Minister and Social Democrat Sigmar Gabriel this week suggested giving euro zone countries which implement structural reforms more time to meet their fiscal goals. Merkel has said, though, that she and Gabriel agree there is no need to change the Stability and Growth pact. The German Bundestag lower house of parliament is due to consult on the budget for 2014 next week.