Germany’s Deficit Doubled in Quarter

By GEOFFREY T. SMITH

FRANKFURT—Germany’s fastest rate of growth in 20 years in the second quarter of 2010 couldn’t stop the country’s budget deficit from more than doubling in the first half, data showed Tuesday.

The Federal Statistics Office, Destatis, said the general government budget deficit for the first six months of the year rose to €42.8 billion ($54.2 billion), or 3.5% of gross domestic product.

Those figures include a stark reminder of the cost of bailing out some of the country’s banks after their disastrous losses during the financial crisis: around €900 million of the deficit was due to the assumption of bad debts from Düsseldorf-based WestLB, which are now on the balance sheet of the state-owned bank rescue fund, Soffin.

A year earlier, the deficit, as measured under the methodology of the European Union’s Maastricht Treaty, had been only €18.7 billion. However, the deficit is still comfortably below original finance ministry estimates of a 2010 deficit of around 5% of GDP, due to the economy having rebounded faster and further than the government had at first expected this year.

Destatis said overall government revenue fell 1.5% to €526.1 billion, including a 2.8% drop in tax revenue to €278 billion. Revenue was also affected by a 29% drop in the profit transferred from the Deutsche Bundesbank, to €9.3 billion.

Meanwhile, spending rose 3% to €568.9 billion, due mainly to increased social spending and labor-market subsidies as a result of last year’s recession. The increase in spending was depressed slightly by the sale of mobile-telephony frequencies, which are accounted for as “negative spending.” Without this effect, spending would have risen by 3.8%. Read more: WSJ

Write to Geoffrey T. Smith at geoffrey.smith@dowjones.com

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