Germany Admits Stability Pact Will Be Breached In 2004

by Ulrika Lomas, Tax-News.com, Brussels

27 October 2003

The German government announced last Thursday that disappointing tax revenues and higher than expected labour market spending would ensure that the country breaches the eurozone’s stability pact rules for the third consecutive year in 2004.

"We have to get honest with ourselves," Economics Minister Wolfgang Clement told reporters last week as the government announced lowered economic growth estimates for this year and next year.

This was later confirmed by Finance Minster Hans Eichel, who revealed that because of lower growth expectations "it is clear that we also won't be able to meet the 3% (deficit limit) next year." Although Eichel said that the government is aiming for compliance with the EU’s debt rules in 2005, he conceded that “this also requires tough efforts”.

As a result of Germany’s economic slump, the nation’s debt and borrowing figures are at record levels, and reports indicate that interest payments alone on the country’s borrowing will reach 40 billion euros this year. According to Edmund Stoiber, Governor of Bavaria, this could jeopardise plans to bring forward 15.6 billion of tax cuts to next year.

"It will be difficult to bring forward the tax reform," argued Stoiber who was narrowly defeated in last year's general elections. "This is now a huge problem. This is a huge burden for the 2004 budget," the Wall Street Journal quoted the politician as concluding.

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