Germany is on track to record another sizable surplus this year (0.7% of GDP) on the back of strong revenue performance (wage and social security taxes) and declining interest expenditure.

The surplus is expected to decline only gradually over the next few years, reflecting the government's latest medium-term fiscal plans. Higher spending on infrastructure, renewable energy and education should be broadly offset by rising tax revenues. Next year, the government's debt-to-GDP ratio could fall below 70% and should drop further, to below 60% (the Maastricht threshold), by 2020 at the latest.



"Even a Greek default on its debt obligations to other euro area member states and institutions (EFSF, ECB etc.) would not, in our view, jeopardize this decline in Germany's debt ratio; rather, we think it would be only a temporary setback. However, the political fallout of such a scenario would be grave and make it much harder to grant aid to other member states in the future," says Barclays.