6 Min Read
* Draft budget sees sharply lower 2012 borrowing
* Borrowing looks optimistic after recent weaker data
* Schaeuble opens budget debate predicting 3 pct GDP growth (Adds quotes from government economic adviser in paragraphs 17 and 18)
By Sarah Marsh and Annika Breidthardt
BERLIN, Sept 6 (Reuters) - Germany's finance minister gave a bullish view of Europe's bulwark economy to lawmakers discussing the country's 2012 budget on Tuesday, although plans to slash new borrowing could prove optimistic given signs of a slowdown.
Finance Minister Wolfgang Schaeuble said he still expected gross domestic product to expand 3 percent this year, playing down a slew of negative data and adding that Germany had proven it was possible to consolidate the budget without choking growth.
Some countries have criticised Berlin for focussing on deficit reduction rather than stimulus. But as twin debt crises in the United States and the euro bloc raise the spectre of another global recession, many are now scurrying to prove their own commitment to reducing debt -- even following Germany's model of a debt brake.
"Germany must and will play its role as an anchor of stability and engine of growth," Schaeuble told the Bundestag lower house of parliament, which is scheduled to vote on the final budget on Nov. 25.
According to the draft budget of Chancellor Angela Merkel's government, net new borrowing will likely fall to 27.2 billion euros ($38 billion)in 2012 from 48.4 billion this year on the assumption that tax receipts and revenue from privatisations will increase.
"We are not swimming in money but we are not drowning in debt any more," Schaeuble said.
The troubles of Germany's most heavily indebted partners in the euro zone have driven down Berlin's borrowing costs as investors seek security in its benchmark Bunds, taking 10-year yields to all-time lows near 1.79 percent on Tuesday.
Germany's debt agency told Reuters earlier on Tuesday it was unlikely to issue inflation-linked bonds in the third quarter this year given current market conditions and the positive development of the federal budget.
Nonetheless, budget committee members from Merkel's centre-right coalition said last week they want net new borrowing to be even lower than the planned 27.2 billion euros, to speed up budget consolidation.
Opposition parties said the government's budget draft was untenable and did not take into account stalling growth.
"This simply goes contrary to any wisdom," said lawmaker Joachim Poss of the centre-left Social Democrats.
Analysts agreed that Berlin was not taking into account the latest worsening economic data.
"I don't think new borrowing will be much lower than last year," said Ulrike Rondorf at Commerzbank.
Germany's economy has been a star performer in the industrialised world since the end of the 2008 financial crisis and has underpinned growth across the euro zone.
But doubts have grown about how much longer the export-driven economy can maintain solid growth rates in light of an expected slowdown in key markets abroad. German growth slowed to 0.1 percent in the second quarter.
Data earlier on Tuesday showed German industrial orders fell more than expected in July on a plunge in foreign demand for capital goods.
Lars Feld, one of the government's economic advisers, told Reuters that weak consumer spending, due partly to uncertainty about the global economy and debt crisis, could weigh on growth in the third and fourth quarters.
"Still, I am confident that positive growth rates could be realised in these two quarters and we won't get a real recession. Then, 3.0 percent growth for the full year (2011) is still feasible," Feld said in a telephone interview.
But in recent weeks, most institutes have slashed their forecasts for 2012 economic growth.
"We now expect weaker (GDP) growth of around 1.3 percent next year, versus a forecast for 1.8 percent four weeks ago, so that would clearly lead to less-than-expected tax revenue," said Dekabank's Andreas Scheuerle.
"I fear the procedure in the government for agreeing on a budget is such that they cannot take into account the latest developments in the economy."
The cabinet's budget draft, sent to parliament in mid-August, sees tax revenues rising to 247 billion euros from 229 billion this year.
Berlin already expects the country's deficit to fall to 1.5 percent of GDP this year, meeting the European Union's 3 percent deficit ceiling two years earlier than required.
But fiscal hawks, emboldened to speak up in the light of the euro zone debt crisis, fear these positive figures could tempt the government to spend rather than continue consolidating.
Merkel's cabinet has said it plans to agree on a tax cut for 2013 by November, despite polls showing most Germans would prefer the government to focus on reducing its deficit.
Schaeuble himself has long resisted calls for tax cuts. Most recently, he conceded somewhat and said his ministry would present proposals for reducing a clandestine tax hike after the summer break.
In its draft budget, Berlin sees total spending rising just 0.07 percent next year to 306 billion euros. That includes 40 billion euros on debt servicing, versus 37 billion this year. ($1 = 0.709 Euros) (Additional Reporting by Matthias Sobolewski, Stephen Brown and Madeline Chambers; Editing by Susan Fenton/Editing by Ruth Pitchford)