BERLIN (MNI) – The Bundesbank sees the chance of balanced public
finances in Germany this year, though the debt to GDP ratio will likely
rise further.

“While a balance of the total public budget seems possible, it is
to be expected that the debt ratio will noticeably rise above last
year’s already very high level of 80.5%,” the central bank said in its
Monthly Report

The rising debt ratio is due to Germany’s participation in the
measures to fight the Eurozone debt crisis and the cost of winding down
the regional state bank West LB, the report pointed out.

“Due to the currently expected economic weakening, the total public
budget deficit will likely increase again next year,” the Bundesbank
predicted. However, “the debt ratio might fall if no new measures to
support German financial companies or to counter the European debt
crisis must be taken,” it added.

While the trend in public finances has recently “surprised
positively”, the structural financing gap has still not been fully
closed, the Bundesbank argued. Elevated temporary surpluses of the
social insurance system mask some high deficits in the budgets of the
federal, regional and local governments, it remarked.

Thus, budget consolidation efforts must be stepped up, the central
bank urged. Calls for a more expansive fiscal policy in Germany in order
to support the Eurozone economy are unjustified, it argued as this would
not bring any significant impulses for the European crisis states.
Moreover, Germany needs to remain the stability anchor in the current
crisis, it insisted.

The Bundesbank called plans for an European banking union and a
joint banking supervision under the helm of the European Central Bank “a
reasonable enlargement of the current framework of the currency union.”

However, “one has to take care that liability and control remain in
balance,” the central bank cautioned. It has to be avoided that joint
liability for banking risks lead to a hidden violation of the no-bailout
clause in the Eurozone, it stressed. Losses from so-called legacy assets
need to be covered by the member states themselves, it demanded.

Moreover, a strict separation of monetary policy and banking
supervision within the ECB is indispensable, the Bundesbank underlined.
Problems of excessive debt must be solved by politicians, it argued.
“This is not the responsibility of the central bank.”

–Berlin bureau: +49-30-22 62 05 80; email: twidder@mni-news.com

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