Germany To Receive Four Month Reprieve Over Deficit, Reports Suggest

by Ulrika Lomas, Tax-News.com, Brussels

09 January 2003

Germany is to receive a four month reprieve from the European Commission over the size of its budget deficit, according to reports in the German media.

Reporting ahead of yesterday's EC meeting, Handelsblatt revealed that EU Commissioners were expected to call upon the country to take whatever steps are necessary to bring its deficit down to below the 3% ceiling by May 2003.

The European Commission has reprimanded both France and Germany for failing to reduce their deficits in line with the stability and growth pact currently in force throughout the eurozone. However, according to the EU Observer news service, the Commission reserved the worst of its criticism for the latter country, accusing it of being 'highly vulnerable to external shocks', and 'incapable of generating lasting internal growth'.

Although Germany has been quick to act on reducing its deficit, the way in which it has chosen to attempt this has proven deeply unpopular with German taxpayers, and the wisdom of imposing massive tax hikes has also been questioned by many European economists.

Speaking to the international media this week, Joachim Schiede from the Institute of Global Economy in Kiel explained that: 'The path taken by the German government is the wrong one: taxes and social payments should not be increased, but it [the government] should concentrate on spending instead.'

France's Prime Minister, Jean-Pierre Raffarin has also expressed his opposition to Germany's preferred solution, according to the EU Observer, which quoted him as announcing that: 'I am not sure that this brutal measure is totally efficient.'

France has so far failed to make any significant moves towards reducing its deficit level, and indeed has pledged to continue with a substantial tax cutting programme promised by President Jacques Chirac prior to his re-election.

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