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FINANCIAL CRISIS

Crisis to turn Sweden’s budget surplus into deficit

Sweden announced on Tuesday it was cutting its 2008 budget surplus forecast, saying the financial crisis would result in a deficit next year rather than the surplus forecast earlier.

“Swedish central government finances are deteriorating. The current financial crisis is dampening economic growth and will make it more difficult to sell state assets,” the National Debt Office (Riksgälden) said in a statement.

“Together this means that the surpluses of recent years are turning into deficits and that central government borrowing is increasing,” it said.

The 2008 budget surplus was put at 148 billion kronor ($19 billion), compared to a June estimate of a record 163 billion kronor, of which 86 billion kronor was expected to come from the sale of state assets.

Sweden’s centre-right government which came to power in 2006 has launched a vast privatization programme aimed at selling assets worth 150 billion kronor in six state-owned companies over three years.

So far, the government has sold part or all of its stakes in four of the six companies, raking in some 116 billion kronor.

For 2009 however, the debt office said it only estimated three billion kronor in such income “due to the financial turbulence,” and did not expect any at all in 2010 “since it will probably take some time before the situation in the financial markets improves.”

The debt office said it expected a 2009 budget deficit of 23 billion kronor, compared to its June forecast of an 83 billion kronor surplus. The deficit was expected to widen in 2010 to 35 billion kronor.

Central government debt was estimated at 1.12 trillion kronor at the end of 2008, up from the 1.01 trillion previously announced.

It was expected to decline to 1.06 trillion kronor at the end of 2009 before rising again to 1.10 trillion in 2010, corresponding to 33 and 32 percent of gross domestic product (GDP) respectively.

At the end of August, the government said it expected growth of 1.5 percent this year, down sharply from 2.6 percent in 2007 and 4.1 percent in 2006.

The government predicted growth of 1.3 percent in 2009.

COVID-19

Court turns down AfD-led challenge to Germany’s spending in pandemic

The German Constitutional Court rejected challenges Tuesday to Berlin's participation in the European Union's coronavirus recovery fund, but expressed some reservations about the massive package.

Court turns down AfD-led challenge to Germany's spending in pandemic

Germany last year ratified the €750-billion ($790-billion) fund, which offers loans and grants to EU countries hit hardest by the pandemic.

The court in Karlsruhe ruled on two challenges, one submitted by a former founder of the far-right AfD party, and the other by a businessman.

They argued the fund could ultimately lead to Germany, Europe’s biggest economy, having to take on the debts of other EU member states on a permanent basis.

But the Constitutional Court judges ruled the EU measure does not violate Germany’s Basic Law, which forbids the government from sharing other countries’ debts.

READ ALSO: Germany plans return to debt-limit rules in 2023

The judgement noted the government had stressed that the plan was “intended to be a one-time instrument in reaction to an unprecedented crisis”.

It also noted that the German parliament retains “sufficient influence in the decision-making process as to how the funds provided will be used”.

The judges, who ruled six to one against the challenges, did however express some reservations.

They questioned whether paying out such a large amount over the planned period – until 2026 – could really be considered “an exceptional measure” to fight the pandemic.

At least 37 percent of the funds are aimed at achieving climate targets, the judges said, noting it was hard to see a link between combating global warming and the pandemic.

READ ALSO: Germany to fast-track disputed €200 billion energy fund

They also warned against any permanent mechanism that could lead to EU members taking on joint liability over the long term.

Berenberg Bank economist Holger Schmieding said the ruling had “raised serious doubts whether the joint issuance to finance the fund is in line with” EU treaties.

“The German court — once again — emphasised German limits for EU fiscal integration,” he said.

The court had already thrown out a legal challenge, in April 2021, that had initially stopped Berlin from ratifying the financial package.

Along with French President Emmanuel Macron, then chancellor Angela Merkel sketched out the fund in 2020, which eventually was agreed by the EU’s 27 members in December.

The first funds were disbursed in summer 2021, with the most given to Italy and Spain, both hit hard by the pandemic.

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