The German cabinet agreed Wednesday to widen its budget deficit for 2012, as Berlin is contributing multibillion euros to the European Stability Mechanism (ESM), which starts operation in July.

The cabinet planed a net new borrowing of 34.8 billion euros (45.6 billion U.S. dollars) this year, larger than its initial projection of 26.1 billion euros, as Germany has to pay 8.7 billion euros for the new eurozone rescue fund ESM, which will come into force one year earlier than planned due to the agreement at December's EU summit.

However, Finance Minister Wolfgang Schaeuble said that Germany's financial position is still quite sound due to its recent robust economic moods, and his country was committed to "growth-friendly deficit reduction policies."

The minister said that the Europe's largest economy would slash its deficit to 19.6 billion euros next year, and further down to 14.6 billion in 2014, by when Germany's structural deficit would fall to 0.26 percent of gross domestic product (GDP).

That means Berlin would achieve its 0.35-percent debt brake target two years ahead of schedule.

Back in 2009, Germany's budget deficit soared to 3.2 percent as the government took out multi-billion-euro stimulus package to curb the global financial crisis and economic recession. While the German economy recovered fast and went back to growth in 2010, the deficit ratio climbed to 4.3 percent in 2010.

However, powered by strong exports and sustained domestic demands, the German economy boosted 3 percent last year following a 3.6-percent growth in 2010, which substantially expanded tax revenues and resulted in a considerable deficit shrinking. (1 euro = 1.32 U.S. dollars)