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Business

Eichel Unveils Draft Budget for 2005

German Finance Minister Eichel has put the finishing touches to the draft budget for 2005. It foresees a new debt of €22 billion and focuses on privatization to bolster state coffers.

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Not that big a deficit this time

Eichel's draft budget for 2005, which will be submitted to cabinet for approval on Wednesday, falls short of €22 billion ($26.5 billion) -- a deficit that's down by around a half on the current year.

Eichel plans to further slash the deficit to €19.5 billion by 2008.

According to the draft, Germany's budgetary spending for next year will total €258.3 billion, an increase of 0.4 percent despite a general belt-tightening.

Eichel also hopes the draft budget will keep spending within the budget deficit cap of 3 percent of GDP set down in the EU's growth and stability pact which underpins the euro.

Germany risks having to pay a huge fine to the European Commission under the terms of the pact if it exceeds the 3 percent ceiling for the third straight year in 2005.

Sale of government assets

One of the most controversial provisions of the draft budget includes selling off a large chunk of government assets in order to bring the budget in line with the constitution.

The German constitution lays down that new deficits cannot exceed the amount of investments, which are expected to amount to €22.8 billion in 2005.

To fulfill constitutional requirements, Eichel is banking on privatizations to bring in a record €15.45 billion that would help to plug a budgetary gap of €18 billion.

The €15.4 billion corresponds to about three-fourths of the current stock market price of the German government's shares in Deutsche Post and Deutsche Telekom.

The finance minister has defended the controversial measure by pointing to the government's refusal to raise taxes or implement new saving measures in the face of sluggish economic recovery. It still remains unclear whether the planned privatizations include government stakes that will be sold in the current year.

"Budget plan of a gambler"

But Germany's conservative opposition has criticized the draft budget for 2005, in particular the sale of government assets at prices, they say, the market won't pay.

"This budgetary nonsense has nothing to do with solid planning," said Dietrich Austermann, budgetary expert of the opposition Christian Democrats. Austermann pointed out that it was speculative to talk of such high privatization proceeds in the face of low share prices.

"This is the budget plan of a gambler. Spending is to be increased, no savings are being made. The planned income is based mainly on speculative figures. State investment is at a record low, and that will make itself felt in the labor market and the number of jobs," he said.

"Selling the family silver"

The draft budget also foresees reducing funds for almost all government ministries in 2005.

The Transport Ministry, for example, will have fewer funds to maintain and extend roads and to modernize Germany's railway system.

Similarly, the Defense Ministry will face substantial cuts - probably to the tune of some €300 million, thus dampening Defense Minister Peter Struck's plans to restructure and modernize the armed forces.

Criticism of the draft budget has also come from the Greens, the junior partner in the ruling government coalition. Franziska Eichstätt-Bohlig, the party's financial expert, called the draft budget "very problematic."

Referring to the planned high privatization proceeds, Eichstätt-Bohlig said, "That's not a permanent stablization of the budget situation. One can sell off the family silver only once."

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