Germany's improving economy -- plagued for so long by meager growth -- finally appears to be making an impact on the government's budget deficit. On the first day of the parliamentary budget debate on Tuesday, German Finance Minister Peer Steinbrück announced that Germany's budget deficit in 2006 would be in line with euro-zone rules for the first time in four years.

Steinbrück said he expected Germany's deficit to be 2.8 percent of GDP this year, just below the EU 3.0 percent limit. But he rejected renewed calls to halt plans to increase value-added (sales) tax from 16 to 19 percent in 2007 despite the shrinking deficit, saying that Berlin needs to continue consolidating its budget.

German newspapers on Wednesday hailed the budgetary news, however, commentators were skeptical about the government's fiscal policies.

The right-wing daily Die Welt agreed Steinbrück was right to try and clamp down on unwarranted "euphoria," since Germany's economic recovery isn't exactly roaring and is on a shaky foundation. And the Finance Ministry's fiscal polices aren't helping matters. "To be sure, he claims to be minister for consolidation, but this image has little to do with reality. Steinbrück's fiscal plan clearly shows that this government is going down the wrong path." Die Welt argues that German Chancellor Angela Merkel seems content to play the reformer yet she's "powerless" to push for cuts in government spending. "Instead the government raised the value-added tax -- even though many citizens already pay more of their income to the state. As long as Merkel refuses to stop this mistake then the finance minister will be nothing more than a businessman during a crisis who thinks of nothing better than to raise prices."

The business newspaper Handelsblatt is also less than impressed. "It's amazing what pleases politicians these days," writes the paper, explaining that the government shouldn't be celebrating the fact that it's actually presenting a constitutionally sound budget and managing to squeak under the EU deficit limit. "But Peer Steinbrück doesn't deserve applause for that. For there is no reason to become complacent. The state's budget is still in a catastrophic state and a few surprise billions in tax revenues won't change that," opines the paper, while pointing out that Berlin will still have to borrow around €60 billion in 2006 and next year combined. "The next economic slump threatens to cause the budget to break the deficit guidelines of the constitution. And the planned increase of VAT by three percentage points certainly won't ensure long-term relief."

The center-left Süddeutsche Zeitung looks at the inflexibility that hampers Steinbrück's ability to control his own budget. "The finance minister would seemingly be swimming in money these days; billions are flowing his way from all over. But actually Peer Steinbrück is only standing in a puddle. He can't swim, at best he can stamp his feet in it like a kid." The reason is that the majority of Germany's budget is locked up in expenditures over which he has absolutely no control. Pensions and unemployment benefit alone eat up €100 billion and another €40 billion is allotted to pay interest on government borrowing. "Naturally it would be helpful if a few extra billion euros flow into the tax coffers next year. However, whoever acts as if the budget would then be consolidated is misjudging the situation since the mountain of debt will continue to grow."

The conservative daily Frankfurter Allgemeine Zeitung is pleased Steinbrück tried to lower expectations for more spending right at the beginning of the parliament's budget debate. "In politics current needs are given greater weight than the interests of future taxpayers, causing German government debt to climb over €1.5 trillion. Already today interest payments are eating away the room for maneuver that fresh borrowing brings. That shows that more ambition is necessary not to fall more deeply into the debt trap." The paper closes its editorial by arguing that the only true way to solve Berlin's budgetary problems is to completely eliminate the deficit.