Germany sees record budget surplus as criticism mounts

Germany notched up another record budget surplus in 2016, official data showed Thursday, as calls mount for Europe's top economy to loosen its purse strings and invest more. The country's federal, state and local governments together achieved an overall surplus in their public finances of 23.7 billion euros ($25 billion) last year, according to Germany's statistics office Destatis. "In absolute terms, this was the highest surplus achieved by general government since German reunification," it said in a statement.
The announcement comes just a day after the European Commission urged Germany to ramp up spending, complaining that its surpluses were creating "economic and political distortions" for the euro area. Germany's swollen purse has long been a subject of controversy among EU peers who have pressed the country to invest more to push up consumption and imports, and in doing so help bolster the eurozone recovery. Germany has in particular come under fire over its massive trade surplus, which grew to a record 253 billion euros in 2016, drawing fierce criticism from the new US administration.
US President Donald Trump's top trade advisor Peter Navarro last month accused Berlin of using a weak euro to gain a trade advantage, while Trump himself has promised tough action to restore the balance. "The German economy is clearly somewhat imbalanced," Jennifer McKeown of Capital Economics told AFP. "The only real way for Germany to address this is through stimulus that would boost domestic spending. But these budget surpluses are implying that isn't happening."
While Chancellor Angela Merkel's government has tended to turn a deaf ear on such complaints in the past, a tight general election coming up in September could force more debate on the issue. Merkel's junior coalition partners the Social Democrats, who are riding high in the polls, "have spoken about fiscal loosening", McKeown said. But in a country where voters view fiscal prudence favourably, she said she was not expecting "a major turnaround". Merkel hit back at the grumbles on Thursday, pointing out that the federal government surplus was only part of the overall surplus, giving her little to work with.
The chancellor, who is hoping for a fourth term, said the government planned to spend more on "internal and external security" as well as social security, but without running up new debts. "That's why we have little room to manoeuvre," she said at a Berlin press conference. Last year marked the third year in a row that Germany's public finances have been firmly in the black.
Measured against gross domestic product (GDP), the 2016 surplus amounted to 0.8 percent of overall output, Destatis said. The surplus of the federal government alone was 7.7 billion euros, lower than the 10 billion accumulated in 2015, as it faced huge expenditures to cope with to a record influx of migrants and refugees. Separately, the statistics office on Thursday confirmed a preliminary estimate that the German economy expanded by 0.4 percent in the fourth quarter of last year. For the whole of 2016, the economy grew by 1.9 percent. "The economic situation in Germany in 2016 thus was characterised by solid and steady growth," Destatis said, underpinned by domestic demand.