BERLIN (MNI) – The Bundesbank expects Germany’s public deficit to
fall to 1% of GDP this year from 4.3% last year, the central bank said
in its Monthly Report released Monday.

“The public revenue ratio will likely increase markedly in 2011,”
the report stated, while “the expenditure ratio should fall markedly.”

For the coming year, the Bundesbank forecasts the country’s deficit
to remain roughly at 1%. The public debt level is projected to fall to
81.1% of GDP in 2011 from 83.2% in 2010.

The Bundesbank warned that there exist “significant uncertainties”
to its deficit forecasts due to the Eurozone sovereign debt crisis.

The central bank urged the German government to step up its
consolidation efforts and bring the debt level more swiftly under the
level of 60% of GDP again, as demanded under the EU Stability and Growth
Pact.

It reckoned that the government has already watered down its
consolidation path in its 2012 federal budget bill. Yet, the expected
“limited economic cooling” in Germany does not justify a slowing of the
consolidation course, it argued.
directly
The central bank again demanded that the government cut
expenditures further to offset the annual revenue losses of around E6
billion from the income tax cut planned for 2013.

Commenting on the Eurozone debt crisis, the Bundesbank reaffirmed
its opposition to giving the European Financial Stability Facility
(EFSF) a bank licence: “This is not in line with the interdiction of a
monetisation of public debt.”

The Bundesbank criticized the increasing collectivization of
liability risks in the Eurozone. Moreover, the planned haircut on Greek
government bonds must not set the example that countries can circumvent
their necessary consolidation efforts, it said.

The central bank argued that the widening of collectivized
liability risks without more rights to intervene directly in national
budgets leads to an “increasingly inconsistent framework of the monetary
union.”

“This increases the risk of unsound public budgets and the
potential for conflict with a stability-orientated monetary policy is
markedly increasing,” it reasoned.

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

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