GERMAN EXPERIENCE ON REDIRECTING PUBLIC BUDGET
Federal Ministry of Finance GermanyPaper completed: December 20051. Challenges and strategy
The main challenges for German financial and economic policy lie in improving growth and
employment, as well as securing the sustainability of public finances. The quality of public finances is
one important component of this strategy both in a more direct and indirect perspective. Direct influences
arise for example from tax measures as well as from certain expenditure programs, which serve the direct
restructuring of public budgets. Indirect influences, on the other hand, are given by medium- and long-
term reforms of the labour market and the social security systems.
In the early 1990s, Germany had above-average growth rates by European comparison, partially as a
result of the reunification boom. Since the second half of the nineties, however, German growth
performance has faltered compared to the EU average. The gross domestic product grew much more
slowly in Germany than in the other European Union countries (cf. Figure 1). This situation has been
aggravated by the phase of economic stagnation over the last three years and the fact that domestic
demand remains weak.
Figure 1 - Development of the real gross domestic product-2-101234561991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006Annual percentage changeGe r ma n y
EU-15