Germany’s budget surplus at highest level since reunification

GERMANY achieved a record budget surplus of €36.6bn (£32.2bn) last year, according to government figures.

The total marks the fourth surplus in as many years for Angela Merkel’s government, and the highest since German reunification in 1990. It comes amid growing pressure from critics, including the US, for Germany to spend more in order to redress the imbalance in international trade, and ambitious spending pledges from Mrs Merkel’s new coalition government.

But Olaf Scholz, the man tipped to take over as finance minister, has pledged to stick to the policy of balanced budgets and rigid fiscal discipline. Analysts said the surplus was driven by record-low unemployment and fast growth in the German economy, coupled with cheap borrowing because of the European Central Bank’s low interest rates.

The German economy grew at its fastest pace since 2011 last year, according to figures released by Destatis, the official government statistics agency. It posted growth of 0.6pc in the final quarter of 2017, and 2.2pc for the year as a whole.

The surplus was actually slightly lower than government forecasts of €38.4bn, but analysts said it should still be enough to finance an ambitious programme of state spending in Mrs Merkel’s new coalition agreement. “As long as the unusually good conditions continue, we will be able to avoid deficits – despite the planned additional expenditure,” Jörg Krämer, the chief economist at Commerzbank, said.

Mrs Merkel agreed to increase spending on families, education and the digital economy in order to secure a new coalition deal with the centre-left Social Democratic Party. The coalition agreement also says Germany is ready to raise its contributions to the EU budget in order to make up the postbrexit shortfall.

But Mr Scholz, who is tipped to take over at the finance ministry if the coalition deal is approved, has pledged to adhere to his predecessor’s policy of balanced budgets.