Recession drives German debt to record levels (Roundup)

Berlin- The German government's new borrowings are set to soar to a record 310 billion euros (437 billion dollars) in the years to 2013, the government said outlining its latest draft budget plans Wednesday. With Europe's biggest economy battling to emerge from its deepest recession in more than 60 years, German Finance Minister Peer Steinbrueck said there was no alternative to the higher borrowings. Steinbrueck said in an interview with the daily Tagesspiegel that the nation's next government, due to be elected in September, is facing a 'mammoth task' in trimming back the debt levels with the nation's deficit set to bust the strict 3 per cent fiscal target for euro member states this year. The German cabinet signed off Wednesday on Steinbrueck's draft 2010 budget, which includes net new borrowings hitting a record 86.1 billion euros next year compared to 47.6 billion euros this year. However, Germany's total debt could balloon out to over 100 billion in 2010 as a result of the government's more than 80-billion-euro fiscal stimulus plans and a series of bank bailouts. In an interview with the German daily Frankfurter Allgemeine Zeitung published Wednesday Steinbrueck warned that he expected Brussels to launch next year a case against Berlin for breaching the euro member-states budget rule. The release of the German budget details came as the Paris-based Organization for Economic Cooperation and Development (OECD) said it was slashing its 2009 forecast for the Germany's economy, and warned about the threat of sharply rising unemployment. Instead of a previously forecast 5.3-per-cent contraction, the OECD said it now expects the German economy will shrink by 6.1 per cent this year, which is in line with other bleak for forecasts for the nation. However, a slew of forward-looking economic indicators have been pointing to the recession starting to loosen its grip on Germany, with economic growth in the nation gaining traction. 'Hopes of an end of to the steep economic descent have been strengthened in the last few weeks,' said the German Banking Association in its latest review of the nation's economy released Wednesday. But in its latest projections, the OECD said it expects Germany to post a meagre 0.2-per-cent growth rate in 2010. Moreover, the banking association also warned in its report that it could might take until at least 2015 for Germany's economy to repair the damage caused by the financial firestorm, which emerged in the US last year and plunged the world economy into a dramatic downturn. While the OECD said it expects the gradual improvement in world trade to help spur a recovery in Germany, the organization warned that overhanging the nation's upturn will be escalating unemployment. Germany's unemployment rate will rise to 8.7 per cent in 2009 before hitting 11.6 per cent in 2010, the OECD forecast. Indeed, the biggest increase in outlays in Steinbrueck's 2010 budget is for the ministry of labour and social affairs, which includes spending on pensions and unemployment benefits. Government outlays for the ministry are projected to jump by about 20 per cent next year to 153.15 billion euros.