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EU Commissioner Solbes Insists on Budget Warning for Germany

EU Economic Commissioner Pedro Solbes is set to go ahead and formally warn Germany and Portugal that they are in danger of failing to meet the key budgetary target set out in the Pact for Stability and Growth.

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Hans Eichel, right, is up against it

European Union Economic Commissioner Pedro Solbes is set to go ahead and formally warn Germany and Portugal that they are in danger of failing to meet the key budgetary target set out in the EU's Pact for Stability and Growth.

Solbes has decided to go ahead and recommend the issue of warnings to the two states, EU insiders said on Monday.

They added that the EU Commission, when it meets on Wednesday, is virtually certain to decide to issue the warnings.

The insiders justified the decision to go ahead with the warning by pointing to the current position of the two states' budget deficits, or new borrowing requirements.

Under the Stability Pact, Germany, Portugal and the other states participating in European monetary union are committed to keeping new borrowing within a maximum of 3% of gross domestic product.

Estimates suggest that Germany's new borrowing in 2002 will come out at 2.7% of GDP. This is seen as dangerously close to the 3% upper limit.

The warnings should not be taken lightly, EU insiders stress. Politicians at all levels of government in Germany will be warned of a need to bring their budget management closer into line with the needs of the Stability Pact than it has been in recent months.

But it's also stressed that the early warning is in no way to be read as a criticism of Finance Minister Hans Eichel.

Indeed the Commission takes the view that while Eichel is in charge of public expenditure, Germany's pursuit of stability-related policies is assured.

In fact, according to the insiders, the Commission takes the view that the early warning will strengthen Eichel's hand, in that he can point to it when rejecting calls from government and opposition politicians for measures that would involve extra public spending or lower budget revenues.

To be able to go ahead and issue the early warning, the Commission will require a qualified majority from the Ecofin, or Council of EU Finance Ministers.

Solbes is hoping that Eichel won't initiate a veto of the measure. If he does, some insiders believe he will have a good chance of success.

Within the Ecofin, two larger members and one smaller member could between them summon the 25 votes necessary to block the issue of an early warning.

Insiders believe that if Eichel wants to block the move, he can expect the backing of France's Laurent Fabius or possibly Britain's Gordon Brown. Portugal, with its finance minister, Guilherme d'Oliveira Martins, is said to be ready to reject the warning.

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