How to Run a Surplus

German Finance Minister Wolfgang Schaeuble (C) arrives for the cabinet meeting at the Chancellery in Berlin, Germany, July 20, 2016. REUTERS/Hannibal Hanschke
German Finance Minister Wolfgang Schaeuble will have to protect his new surplus from many quarters.
  • Why it matters

    Why it matters

    To avoid running a deficit, Germany needs to continue generating surpluses to cover increased costs associated with the refugee crisis.

  • Facts


    • In the first half of 2016, Germany generated a surplus of €18.5 billion.
    • Spending actually increased from €299.1 billion in 2015 to €316.9 billion in 2016.
    • The Finance Ministry projects a balanced budget in 2017 despite plans to increase spending by another €10 billion.
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Germany continues to defy expectations and generate historic surpluses, despite increased spending on everything from the refugee crisis to defense and infrastructure.

In the first half of 2016, revenues topped expenditures by €18.5 billion ($20 billion), according to the Federal Statistical Office.

That’s the largest mid-year surplus since the country’s reunification in 1990, and it comes at a time when many other European counties are continuing to struggle with balancing their budgets.

“In the middle of the year, it's still to early to speculate about the budget result for all of 2016.”

Finance Ministry Spokesman

Even more surprising, Germany remains flush despite an increase in spending from €299.1 billion in 2015 to a projected €316.9 billion in 2016.

Last year, Germany generated a surplus of €19 billion.

Stable economic growth, a strong labor market and low interest rates have all contributed to the continuing surpluses.

But experts warn that the good times won’t last forever and, despite some calls internationally to spend more, warned against earmarking the new surplus for pet projects.

“The public surpluses have more to do with luck than good policy,” Michael Fratzscher, president of the German Institute for Economic Research, told Handelsblatt.

The Finance Ministry has also cautioned against drawing overly optimistic projections about the budget based on mid-year results.

“In the middle of the year, it’s still to early to speculate about the budget result for all of 2016,” said a ministry spokesman. It’s important to “remain very careful,” the spokesman added.

That doesn’t mean Germany is in bad shape, either. Experts such as Jens Boysen-Hogrefe at the Kiel Institute for Global Economy believe Germany will likely generate a surplus again this year, though perhaps smaller than the €19 billion in 2015.

“The revenues are good and interest costs continue to drop,” said Mr. Boysen-Hogrefe.

Ralph Brinkhaus, the deputy head of the center-right Christian Democrats’ parliamentary faction, welcomed the continued surpluses but also warned that Germany still faces a tight fiscal situation.

“We have a lot to deal with like increased spending for integration, but also for internal and external security or social security,” Mr. Brinkaus told Handelsblatt. “There’s no room for additional spending.”

But it’s not just the right of the political spectrum that is urging caution. Johannes Kahrs, the budget expert for center-left Social Democrats, warned against using the surplus to justify tax cuts.

“The question of tax relief can be seriously discussed only at the end of the year, when we will know whether or not the surplus was a one-off,” Mr. Kahrs said.

Though cautious, the Finance Ministry expects the trend to continue. Last March, Finance Minister Wolfgang Schäuble said Germany would maintain a balanced budget in 2017, despite plans to increase spending by nearly €10 billion to €325.5 billion.


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