UPDATE 1-Germany scales back borrowing plans for 2011

By Matthias Sobolewski and Sarah Marsh BERLIN, Nov 11 (Reuters) - Germany scaled back its borrowing plans for 2011, putting it firmly on track to hit deadlines for compliance with EU and domestic spending rules after a faster than expected recovery from last year's recession. The parliamentary budget committee that makes the final decision on Berlin's borrowing threshold reached agreement at a sitting that ran into the early hours of Friday. Europe's largest economy would now cap 2011 net new borrowing at 48.4 billion euros, lower than previously forecast. The official number confirmed a Reuters report from Thursday. In its latest draft budget for 2011, the government had been expecting net new borrowing to be about 57.5 billion euros, but since then the economic picture has brightened due to strong growth and rising tax revenues. A more positive employment outlook is also having an effect, with the average number of jobless widely predicted to fall below 3 million in 2011 -- a level not reached in two decades that would ease social expenditure. Third quarter growth figures also released on Friday confirmed Germany's recovery was on a broad footing, though the economy expanded at a slower pace than in the previous three months. TURNING POINT The budget committee adjusts the government's draft every autumn to bring it in line with the economic situation, then sends it to the Bundestag lower house of parliament at the end of November for final deliberations over revenue and expenditure for all ministries and other authorities. Following Friday's committee agreement, the government can spend 305.8 billion euros in 2011, of which 32.3 billion are reserved for investment. The largest chunks of the annual budget go to the labour ministry, which makes up some 40 percent of overall expenditure, followed by interest payments on Germany's debt which amount to 38 billion euros. Next year marks a turning point for Germany's state finances, as debt brake legislation comes into effect that will force the federal government to reduce the gap between its revenue and spending to under 10 billion euros annually by 2016. The legislation, which will be anchored in Germany's Basic Law, also means that the country's states -- known as Laender -- will likely no longer be able to create new debt from 2020. The fiscal roadmap falls into line with rules for member states of the European Union, which require Germany to reduce its deficit to 3 percent of gross domestic product (GDP) or lower by 2013 at latest. For 2010, the federal government expects net new borrowing of about 50 billion euros -- roughly 30 billion euros less than once predicted, putting the deficit at 4 percent of GDP. (Writing by Brian Rohan; Editing by John Stonestreet) Keywords: GERMANY DEBT/2011 (brian.rohan@reuters.com ; +49 30 2888 5223; Reuters Messaging: brian.rohan.reuters.com@reuters.net ) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved.

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