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BUDGET

Parliament approves record 2009 budget

After four days of tough debate, Germany’s lower house of parliament on Friday approved a record €290 billion budget for next year that was unanimously rejected by the country’s opposition parties.

Published: 28 November 2008 13:48 CET
Parliament approves record 2009 budget
Berlin, we have a budget. Photo: DPA

The government will spend 2.4 percent more in 2009 than in 2008 and take on €18.5 billion in new debt as the world’s export champion struggles with the repercussions of a global economic slowdown.

Finance Minister Peer Steinbrück praised the budget as being on-target while rejecting calls for tax cuts to help re-ignite the economy. One has to be careful that “the interest noose we’ve got around our neck doesn’t keep growing,” he said. He also noted that tax cuts would have no effect for half of the country’s 47 million households since they pay no income tax.

The budget, developed by politicians from the ruling Social Democrat (SPD) and Christian Democrat (CDU) coaliation, was met with strong words by the country’s opposition parties.

Otto Fricke, head of the Bundestag’s budget committee and a member of the liberal Free Democrats (FDP), said 2009’s budget broke several records. “Never during this legislative period has a budget been so far from reality as this budget. It is purely a campaign budget,” Fricke said, referring to next September’s general election. His party’s budget expert, Ulrike Flach, said that the budget would become a “blemish” on the struggling job market in the coming weeks.

The hard-line socialist Left party demanded the coalition government launch an economic stimulus package equivalent to 1 percent of the country’s $2.6 trillion gross domestic product. It accused the government of mouthing empty clichés while swiftly launching a €560 billion rescue package for banks.

Anna Lührmann from the Greens accused the government of “lacking in seriousness” by ignoring €20 billion in potential risks related to the budget. She also pushed to have debt limits added to the country’s constitution to ensure that liabilities are paid down during economic upturns.

CDU budget expert Steffen Kampeter rejected the criticism and said the government is using the new debt to offset a shortfall in tax income related to the economic slowdown. However, Kampeter acknowledged that a budget alone couldn’t offset concerns sparked by the slowing economy.

“You can’t buy trust,” he said.

Environment minister Sigmar Gabriel (SPD) will have 67.5% more cash to give out next year as new CO2-related income flows into his account while transport minister Wolfgang Tiefensee (SPD) will have the biggest true increase with a total €2.3 billion more allotted to his ministry for 2009.

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ECONOMY

How is Denmark’s economy handling inflation and rate rises?

Denmark's economy is now expected to avoid a recession in the coming years, with fewer people losing their jobs than expected, despite high levels of inflation and rising interest rates, The Danish Economic Council has said in a new report.

Published: 30 May 2023 15:46 CEST
How is Denmark's economy handling inflation and rate rises?

The council, led by four university economics professors commonly referred to as “the wise men” or vismænd in Denmark, gave a much rosier picture of Denmark’s economy in its spring report, published on Tuesday, than it did in its autumn report last year. 

“We, like many others, are surprised by how employment continues to rise despite inflation and higher interest rates,” the chair or ‘chief wise man’,  Carl-Johan Dalgaard, said in a press release.

“A significant drop in energy prices and a very positive development in exports mean that things have gone better than feared, and as it looks now, the slowdown will therefore be more subdued than we estimated in the autumn.”

In the English summary of its report, the council noted that in the autumn, market expectations were that energy prices would remain at a high level, with “a real concern for energy supply shortages in the winter of 2022/23”.

That the slowdown has been more subdued, it continued was largely due to a significant drop in energy prices compared to the levels seen in late summer 2022, and compared to the market expectations for 2023.  

The council now expects Denmark’s GDP growth to slow to 1 percent in 2023 rather than for the economy to shrink by 0.2 percent, as it predicted in the autumn. 

In 2024, it expects the growth rate to remain the same as in 2003, with another year of 1 percent GDP growth. In its autumn report it expected weaker growth of 0.6 percent in 2024.

What is the outlook for employment? 

In the autumn, the expert group estimated that employment in Denmark would decrease by 100,000 people towards the end of the 2023, with employment in 2024  about 1 percent below the estimated structural level. 

Now, instead, it expects employment will fall by just 50,000 people by 2025.

What does the expert group’s outlook mean for interest rates and government spending? 

Denmark’s finance minister Nikolai Wammen came in for some gentle criticism, with the experts judging that “the 2023 Finance Act, which was adopted in May, should have been tighter”.  The current government’s fiscal policy, it concludes “has not contributed to countering domestic inflationary pressures”. 

The experts expect inflation to stay above 2 percent in 2023 and 2024 and not to fall below 2 percent until 2025. 

If the government decides to follow the council’s advice, the budget in 2024 will have to be at least as tight, if not tighter than that of 2023. 

“Fiscal policy in 2024 should not contribute to increasing demand pressure, rather the opposite,” they write. 

The council also questioned the evidence justifying abolishing the Great Prayer Day holiday, which Denmark’s government has claimed will permanently increase the labour supply by 8,500 full time workers. 

“The council assumes that the abolition of Great Prayer Day will have a short-term positive effect on the labour supply, while there is no evidence of a long-term effect.” 

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