9 July 2010
The German cabinet has agreed a four-year plan of budget cuts.
The spending reduction over the next four years reflects a recent change to the country's constitution, which requires the government to borrow less.
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Germany, in common with most other developed countries, does have a problem with its public finances. Back in 2008 there was a small surplus, but last year the government had to borrow the equivalent of over 3% of annual national income.
Its accumulated debt burden is also rising. So the case for taking some action at some time to stabilise the public finances is strong.
But Germany's problem is much milder than many other countries. There are concerns that budget cuts in many countries at the same time could undermine an economic recovery that, in the developed countries at least, is not strong.
In addition, Germany has a surplus in its foreign trade, quite a large one. It sells more than it buys from abroad. It has long been argued by the International Monetary Fund and by the US that countries with trade surpluses should do more to provide a market for others, and German austerity could actually mean less spending on foreign goods.
On the other hand it is possible that widespread efforts to improve government finances might help the global economy by boosting business and consumer confidence. But there are risks either way, and the danger of a new lurch into recession in the developed world cannot be dismissed.
Andrew Walker, BBC News, Berlin
Click to hear the vocabulary
amount of money left over after paying all debts
- to borrow
to receive something (here money) temporarily before giving it back
- its accumulated debt burden
the amount of money that Germany owes in total
- to stabilise
to make more steady
less severe or strong
- budget cuts
reduction in the country's spending
plans to reduce spending
- widespread efforts
attempts by many people