Government coffers get boost from record-low unemployment and ultra-cheap debt finance      
 Germany ends 2016 as world’s fastest growing advanced economy
          
 Critics of Germany’s surplus say its export-led growth is a corollary to the build-up of debt in other countries and puts the global economy at risk © Bloomberg
     
        February 23, 2017
        by: Claire Jones in Frankfurt
     

Germany has posted its highest budget surplus since reunification in 1991, inviting fresh scrutiny over whether the eurozone’s largest economy should do more to increase spending and redress global economic imbalances.

Germany’s statistical office on Thursday reported the country was in the black by €23.7bn last year, with local, state and central government coffers benefiting from record-low unemployment and ultra-cheap debt finance stemming from the European Central Bank’s mass purchases of sovereign bonds.Chancellor Angela Merkel’s government, which has vowed to maintain a balanced budget as a cornerstone of its economic policy, hailed the larger surplus. “These figures show that Germany is doing well,” said Jens Spahn, deputy finance minister. “We invest more than ever — and still have surpluses.”But Germany’s critics will view the surplus as evidence that Berlin has the capacity to spend more to boost domestic demand. That would raise the chances that Germans would buy more goods and services from abroad and help to reduce its frequently criticised trade gap with the rest of the world.The difference between what Germany sells abroad and what it buys — the current account surplus — was about 8 per cent of gross domestic product last year. The size of the surplus has stoked criticism from economists, multilateral organisations and the new US administration, that Germany’s export-led growth was a corollary to a build-up of debt in other countries and was putting the global economy at risk.In a sign that government spending could also become a battleground in September’s federal election, the centre-left Social Democrats, the chancellor’s junior coalition partner, have called for part of the surplus — the €6.2bn attributable to central government — to be used to fund infrastructure investment.The chancellor’s Christian Democrats want the surplus to be employed to lower government debt, which, at an estimated 68.2 per cent of GDP, remains above the ceiling of 60 per cent set by EU rules.Ms Merkel on Thursday acknowledged the government needed to spend more in certain areas, such as upgrading parts of the country’s infrastructure.Read more
        
          Brussels warns Italy to cut public debt by April          European Commission also says Germany’s current account surplus ‘not healthy’
     
 With disagreements between the coalition partners, this year’s windfall is likely to fund a cash reserve set up to support the country’s influx of refugees after the migrant crisis in 2015. Wolfgang Schäuble, Germany’s finance minister, said he will set aside an expected surplus for 2017 to cut income tax.Of the four largest economies in the eurozone, Germany was the only one in surplus last year. France, the second-largest economy, was on track to record the largest deficit.Jens Weidmann, president of the Bundesbank, on Thursday supported the CDU’s calls to use the surplus to lower debt and said a surplus was appropriate given Germany’s ageing society.Clemens Fuest, head of the Munich-based Ifo think-tank, cautioned against the use of short-term fluctuations in revenue to cut taxes or spend more. However, Mr Fuest added that “in the medium to long term, there is room in the budget — perhaps around €15bn-€20bn — to spend”. He said these funds must be used for income tax cuts and public investment.