Germany’s budget deficit outlook brightens; Slovakia approves eurozone fund

Outlook for Germany’s budget deficit improves

BERLIN — Germany cut its 2010 budget deficit forecast on Thursday and said it hopes to comply with an EU-mandated limit a year earlier than expected, while Slovakia’s new government became the last to approve a rescue fund for debt-troubled eurozone countries.

Germany, Europe’s largest economy and a leading advocate of getting public finances under control, cut its 2010 deficit prediction to 4.5 percent from 5.5 percent.

It also said it expects its deficit to drop to 3 percent, the maximum allowed under European Union rules, in 2012. It had long pledged to get the shortfall below that level by 2013.

The Finance Ministry pointed to lower spending on benefits as a result of moderate unemployment, as well as a higher tax take and proceeds from an auction of cell phone frequencies. With the economy growing, that has allowed it to reduce its plans for new borrowing this year.

Along with several other countries in the 16-nation eurozone, Germany has embarked on an austerity drive in the wake of the debt crisis that started in Greece and focused market attention on European nations’ public finances.

That crisis culminated in May’s agreement on a €750 billion ($950 billion) financial rescue package that can be tapped if other indebted EU nations need help.

The newly elected center-right coalition government in Bratislava initially had balked at paying Slovakia’s part of the package, €4.37 billion. However, it signed up on Thursday, and the deal now goes to parliament for approval.

The government did, however, reject paying Slovakia’s €800 million share — less than 1 percent — of a separate €110 billion rescue package from eurozone partners and the International Monetary Fund for Greece.

Athens narrowly avoided default in May when it received the first installment of the package.

The euro, which has rebounded recently after being pounded for months amid worries about the debt crisis, appeared unaffected by that aspect of Slovakia’s decision. It traded as high as $1.2834 in midday European trading — up from $1.2729 in the early morning.

Germany forecast in January that its deficit would swell to 5.5 percent this year in the aftermath of the economic crisis.

The country had reduced its budget deficit to zero in 2008 before the crisis hit, but saw it climb to 3.1 percent last year — narrowly breaching the EU rules.

The Finance Ministry said Thursday that it now expects the deficit to peak at 4.5 percent this year before declining to 4 percent next year, 3 percent in 2012, 2 percent in 2013 and 1.5 percent in 2014.

Germany has settled into modest growth over the past year, helped by its traditional export strength as the global economy recovers.

Industrial orders have grown strongly this year and the government has said the economy may grow by 2 percent in 2010 instead of the officially forecast 1.4 percent.