Financial Planning : Germany

A 1967 Law for the Promotion of Economic Stability and Growth requires the federal and state governments to draw up their budgets in the light of the principal economic policy objectives. These are price stability, a high level of employment, balanced foreign trade and steady economic growth (”the magic square”). The Federation and the states must draw up financial plans for their areas of responsibility in which incomes and expenditure are projected for a period of five years. The purpose of this multi-annual financial planning is to ensure that public revenue and expenditure are commensurate with national economic resources and requirements. The municipalities, too, must draw up medium-term financial plans.

The great importance of the public budgets requires close coordination through all levels of administration. The main body in this process of voluntary cooperation is the Financial Planning Council, which was set up in 1968 and consists of representatives of the Federation, the states, the municipalities and the Deutsche Bundesbank.

In view of the budgetary policy stipulations of the Treaty on European Union, which obligate the participating countries to limit their national debt and national deficit, the coordinating function of the Financial Planning Council is taking on additional importance. There is also a Business Cycle Council with coordinating and advisory functions.