EU Accepts German Budget Plans, Doubts 2005 Forecasts

by Ulrika Lomas, Tax-News.com, Brussels

23 February 2004

The European Union has accepted Germany’s latest budget proposals, although concerns have been raised over the country’s ability to bring itself back in line next year with the budget deficit limits laid down in the Growth and Stability Pact.

Whilst the EU has expressed satisfaction that the German government’s growth forecasts for the year ahead are in line with its own at 1.7%, the Commission is worried that growth estimates for 2005 are somewhat optimistic at 2.5%. The EU’s governing body has also criticised Germany’s spending plans on pensions, health and social security, fearing they will exceed expenditure targets.

However, defending the German government’s policies, finance ministry spokesman Jorg Mueller hit back at the Commission, saying that its fears on growth were “completely unfounded.”

The German leadership has repeatedly defied the EU over its economic policy, which has led to successive breaches of the Stability Pact’s 3% budget deficit limit. This year the government forged ahead with tax cuts worth several billion euros in an attempt to kick-start the economy.

However, German policy has caused deep resentment amongst fellow member states that have followed what they claim are more prudent economic paths, and they have rejected Franco-German calls for the Pact to be loosened.

In a letter sent last week to head of the Irish presidency of the European Union, Bertie Ahern, six EU member states including Italy, Spain, Poland, the Netherlands, Portugal and Estonia declared: "Economic recovery must respect the principles of macroeconomic stability. Our commitment to sound budget policies should not be questioned."

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