Bundesbank Warns That Germany Could Breach Stability Pact In 2004

by Ulrika Lomas, Tax-News.com, Brussels

20 August 2003

Germany looks set to break the European Union's stability and growth rules again in 2004, according to the Bundesbank's August report, meaning that the country may well face the possibility of EU sanctions as a consequence.

Germany's budget deficit breached the 3% GDP threshold last year, and the government expects to break the limit again this year. With tax cuts initially planned for 2005 being brought forward by one year, the Bundesbank also expects the budget deficit to remain over 3% in 2004.

"If taxes are to be lowered without breaching EU rules, governments are urged to review subsidies and tax breaks," the central bank stated in its report, adding that: "It would be regrettable if the 3 percent limit were to be breached" in 2004.

Meanwhile, in a recent interview with FT Deutschland, EU Monetary Affairs Commissioner Pedro Solbes warned it was the Commission's "duty" to take action against the German government if the 3% limit is breached next year.

"If Germany breaches the stability pact's 3 per cent ceiling next year, we will present Ecofin [the EU's economics and finance ministers] with a new recommendation. It is our duty," Solbes told the FT.

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