European Economy. Economic Papers. Germany's growth performance in the 1990's

Table 2.1: Deficit and Debt (in % of GDP)
91
92
93
94
95
96
97
98
99
00
Actual deficit
-2.9
-2.6
-3.1
-2.4
-3.5
-3.4
-2.7
-2.2
-1.6
-1.3*
Real GDP growth
-
2.2
-1.1
2.3
1.7
0.8
1.4
2.0
1.8
3.0
Cyclically adjusted balance
-4.9
-4.4
-3.4
-2.8
-3.7
-3.2
-2.3
-1.9
-1.3
1.6
Debt
40.4
43.1
47.2
49.4 57.1*
59.8
61
60.9
61.3
60.3
*: without one-off UMTS receipts corresponding to 2.5% of GDP,
**: ‘jump’ in the debt level due to assumption of several funds directly linked to re-unification
Source: Commission sources (AMECO
)
To meet the unexpectedly high financial burden of re-unification
18
the federal government in
1991 first introduced a strategy aimed at increasing revenues (e.g. through the so-called
solidarity charge on top of income tax). This drove the cyclically-adjusted ratio of total receipts
to GDP up from 42.3% in 1991 to 45.8% in 1993. However, these measures were insufficient to
solve the rising budgetary problems while contributing to the deepest recession observed in
Germany in the post-war area. Still, the government had no choice but to adapt a pro-cyclical
stance, reducing the cyclically-adjusted deficit by close to 1 percentage point in 1993 alone.
While 1994 showed a clear improvement in public finances and economic growth, the years
from 1995 onwards were characterised by a combination of weak economic growth and ongoing
efforts to put public finances back on a sustainable path, not least to comply with the criteria on
European Monetary Union. As a consequence, both the revenue and the expenditure ratio to
GDP rose further, reaching 46.5% and 49.2% of GDP in 1997, the reference year for the
decision on membership in EMU.
In order to gauge the impact of budgetary policy during the 1990s on the economy at large,
Table 2.2 presents figures for the cyclically adjusted government balance excluding interest
payments, as estimated by DG ECFIN. The table shows that, judging by this indicator,
budgetary policy during the first half of the 1990s was more restrictive in Germany than in the
Euro-area/EU on average. But between 1995 and 2000 budgetary consolidation efforts in
Germany were smaller than in the EMU/EU partner countries on average. Including the year
2001 even reinforces this argument. As a consequence, on the basis of this indicator the
hypothesis that a restrictive global budgetary policy stance after the mid-1990s was an
important factor in comparatively slow growth in Germany cannot be confirmed.