Germany won't make EU budget deficit limit: finance minister

Germany will not be able to trim its budget deficit in 2003 to meet European Union limits, Finance Minister Hans Eichel said in a interview this week. He admitted Berlin could not keep its pledge to rein in spending and balance its budget within three years.

"This year, as well, the deficit will be above 3 percent of gross domestic product," Eichel told Der Spiegel magazine, referring to the amount set by the Stability and Growth Pact for the 12-nation euro zone.

Until recently the minister had talked of reducing the deficit in 2003 to 2.7 percent of Germany's GDP, but last month he warned that budgetary conditions had worsened sharply and official estimates would have to be revised.

"It is clear that we can't make it, even with 18.9 billion euros of new debt already accounted for in the federal budget," Eichel said. Reports suggest that the actual budget debt could run as high as 34 billion euros this year.

Germany, the EU's largest economy, recorded a 3.6 percent deficit for 2002 and is now subject to the EU's "excessive deficit procedure" - which could theoretically lead to multimillioneuro fines for exceeding euro-zone limits.

Chancellor Gerhard Schroeder also admitted his government would fail to fulfill its campaign promise to balance the budget.

"For a 2006 budget without a deficit, we would have needed a growth rate that I cannot hope for," he told Tagespiegel newspaper.

His finance minister agreed: "We won't make it in 2006, unless an economic miracle takes place," he said, calling it "a bitter defeat."

Schroeder said however that despite the grim predictions, he was not willing to cut state spending nor to give up on a multibillioneuro stimulus program unveiled in March.

In addition to the 3 percent cap for public deficits, the EU stability pact requires that each of the 12 euro countries balance their national budgets in the medium term.

Germany's 2006 date was based on predictions of federal growth averaging 2.25 percent between 2004 and 2006.

But its growth has flagged considerably, with officials predicting 0.75 percent growth for this year, compared with 1 percent the past two years.

Tax revenues for 2003 are due to be announced next week.

Schroeder's red-green government of Social Democrats and Greens faces a battle to enact tough new labor, pension and health regimes. And unemployment continues to hit record highs each month, with 4.46 million people - or 10.7 percent of the working-age population - jobless in April, the highest for the month since 1990.

The excess deficit could weigh heavily on Eichel. According to the German weekly Focus, the finance minister warned associates he would resign if Berlin could not rein in the deficit below the 3-percent mark by 2004.

His ministry has denied this claim.

Opposition leader Angela Merkel late last week called for his departure, saying he is faced with "a pile of broken pots."

The EU's Stability and Growth Pact, which dates from 1997, aims to prevent member states from exporting inflation and monetary instability to the rest of the European bloc.

France and Portugal have recently also exceeded the 3 percent deficit limit.