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German slowdown threatens budget plans

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German slowdown threatens budget plans

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Germany’s Finance Minister Wolfgang Schäuble has called for a Europe-wide reduction in government spending as he presented next year’s draft budget in parliament.

That budget foresees reduced borrowing by Berlin but the economic shifting sands may have undermined that idea as a slowdown in Europe’s biggest economy could cut the amount of tax revenue raised.

Schäuble said Germany’s previous spending cuts had proved to be the right approach: “Last year, we were heavily criticised internationally because of our budget consolidation. But today, our success proves that we were right. We have shown it’s possible to consolidate properly, not by undermining growth, but by stimulating it.”

The IMF and German government predict growth of 3.2 percent this year falling to two percent next year and 1.6 percent in 2013.

German opposition politicians say that is too optimistic and government spending should be cut even more.

They ask how much longer the country’s export-driven economy can continue to expand with an expected slowdown in key markets abroad.

German growth did slow to just 0.1 percent in the second quarter of this year and in recent weeks, many economists have cut back their forecasts for economic growth next year.