Germany now capable to hike public spending without taking more debt

Germany reduced its overall public debt by 2.3 percent to 1.93 trillion euros ($2.27 trillion) in the first half of the year, pushing it to the lowest level since 2011, data showed on Wednesday.

Sustained economic growth means Germany's government is enjoying a budget surplus which enables it to hike public spending without taking on new borrowing.

The debt of all state levels, including the federal government, the 16 federal states, municipalities, and social security systems, shrank by 46.5 bln euros from January through June year-on-year, the Federal Statistics Office said.

Chancellor Angela Merkel's federal government reduced debt by 1.7 percent to 1.22 trillion euros and the 16 federal states lowered debt by 3.6 percent to 574.5 billion euros. Debt of the social security systems fell by 7.1 percent to 403 million euros.

Germany last week cut its debt issue plans for the fourth quarter by 2 billion euros ($2.34 billion). However, the shrinking debt poses a challenge for the European Central Bank that will have to discuss how it will reinvest money accruing from government bonds under its asset purchase programme that matures next year.

Investors want to know whether the ECB will deviate from its current rules and further slow purchases in Germany, where it is nearing a self-imposed debt cap.