Germany plans to cut new borrowing in savings drive

BERLIN (Reuters) - Germany plans to cut net new borrowing by some 80 billion euros ($100 billion) over five years, reducing supply of Europe's benchmark debt and adding pressure on other euro zone members to tighten their own public finances.

The draft budget for 2011, which the cabinet plans to approve on Wednesday for ratification in parliament in November, will anchor a 34 billion euro reduction in new issuance over the next two years compared to earlier plans.

The federal government also aims to cut spending to 307.4 billion euros next year, a 3.8-percent decrease from plans made before a "debt brake" law was passed in 2009, details of the draft made available to Reuters on Sunday showed.

The budget is the latest chapter in Germany's drive to consolidate public finances, a move that has drawn criticism from some other large countries that say it is too early to withdraw support enacted during the financial crisis.

Last month, Chancellor Angela Merkel unveiled plans for 80 billion euros in budget cuts over the next four years, although economists say the headline figure is exaggerated and put the actual savings at somewhere between 27 and 33 billion euros.

Nevertheless, the cuts may further dent her record-low popularity and undermine her authority which was already tarred recently when rebellious members of her coalition initially refused to back her pick for Germany's ceremonial presidential post.

Unions have promised stiff resistance and industrial action looks likely -- a threat that could rise as cuts in social services deepen and health care costs rise as planned.

In addition, some politicians from within Merkel's ruling coalition say the measures are unfairly aimed at the poor, whose benefit cuts make up the largest part of the savings planned through 2014.

Besides the spending cuts, the budget's planned reduction in new borrowing to 65.2 billion euros this year and 57.5 billion euros in 2011 will put the onus on other countries that share the euro currency to follow suit.

(Writing by Brian Rohan; Editing by Susan Fenton)