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EU's Solbes confident Germany won't breach stability pact; DIW economic institute says German economy in crisis; electronic firms Grundig faces bankruptcy proceedings and Berlin senate reaches compromise with unions.

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German Finance Minister Hans Eichel, left, talks to EU Monetary Affairs Comissioner Pedro Solbes in Berlin.

Solbes optimistic Germany stick to stability pact

European Union Economic and Monetary Affairs Commissioner Pedro Solbes said Tuesday he was optimistic that Germany’s budget deficit would not breach the EU growth and stability pact in 2004. "I’m quite confident that Germany will respect the EU rules," Solbes told a press conference in Berlin after meeting with German Finance Minister Hans Eichel. His comments follow Chancellor Gerhard Schröder’s weekend announcement he would bring forward tax cuts originally planned for 2005 to help revive economic growth. The move raised fears among EU officials that Germany could violate the pact – which lays down a deficit ceiling of 3 percent of gross domestic product – for the third successive year in 2004. Solbes however reiterated Germany needs to implement more structural reforms and consolidate its budget. "Germany’s growth problem is Europe’s growth problem," he said.

Economic institute says Germany in crisis

Berlin-based economic think tank DIW said Tuesday that Europe’s largest economy was in crisis. It predicted Germany would record a recession for the entire year as the economy shrinks by –0.1 percent and that 2004 would not live up to official expectations either. "Germany is in an economic crisis," the DIW said in a report. "A strong economic upturn next year is also not in sight." The respected institute said that economic growth would return in 2004, but that it would only reach 1.3 percent and not the 2.0 percent being forecast by the government. DIW President Klaus Zimmermann also welcomed the chancellor’s latest decision to speed up tax cuts as a "clear signal" to kick start the economy.

Grundig to be broken up

Bankruptcy proceedings were opened against ailing German electronics company Grundig AG on Tuesday in Nuremberg. The move marks the end of a more than 50-year-old history for one of the biggest European manufacturers of video cameras, radios, DVD players and television sets. The company filed for insolvency in 2000 and has been in the red ever since. In 2002 it registered a loss of €75 million and has been searching in vain for prospective buyers after possible investors, Turkish electronics company Beko and Taiwan’s Sampo, decided against taking a stake in the firm. The 1,300 employees of the company are expected to first be hired by a personnel firm and can then work for potential investors. Trade union IG Metall estimates only about 350 to 500 jobs can be permanently secured.

Berlin reaches deal with unions for public workers

The Berlin city government reached a compromise with trade unions on Tuesday over wages for some 100,000 public sector workers in the German capital. Both Berlin’s Mayor Klaus Wowereit and head of service union Verdi Frank Bsirske said they were satisfied with the results. The compromise foresees implementing a nationwide wage agreement for public services, which includes a pay hike of 4.4 percent, in Berlin. The agreement which runs till Dec 31, 2009 enables the Berlin senate to make massive savings in the personnel area, while it allows employees a more than six-year fixed employment guarantee.