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Business

EU Sets Germany Deficit Ultimatum

Germany's next government will have to rein in the country's deficit by 2007 or face sanctions from Brussels, EU leaders said. Public finances have already been a source of tension between Christian and Social Democrats.

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Hard times ahead for Germany's current and next finance minister

The head of the eurozone group, Luxembourg's Premier Jean-Claude Juncker, who also serves as his country's finance minister, said he had made it "completely clear" to German Chancellor Gerhard Schröder and his probable successor, Angela Merkel, that "Germany has to adhere to all regulations and restrictions that come with the stability and growth pact by 2007."

EU Finanzminister Treffen in Brüssel

Austria's Finance Minister Karl-Heinz Grasser (left) talks with Luxembourg counterpart Jean-Claude Juncker (center) as European Central Bank President Jean-Claude Trichet passes along.

Austrian Finance Minister Karl-Heinz Grasser also said that Germany needed to get back on track as the country was set to violate the growth pact rules, which require country's to keep their deficit below 3 percent of GDP, for the fourth time in a row.

EU officials will decide about imposing fines on Germany for the violations in November at the earliest.

Coalitio n talk te n sio n

Germany's public finances meanwhile have also already become a source of tension between the Social Democrat (SPD) and Christian Democratic Union (CDU) parties as they prepared to enter into tough negotiations to try and form a new coalition government.

Edmund Stoiber, head of the CDU's Bavarian sister party CSU who is set to be Germany's new economy minister under Merkel, has called for a supplementary budget to be drawn up for 2005 in view of the gaping holes in this year's spending plan.

Edmund Stoiber

Edmund Stoiber

"We consider it absolutely necessary, because we can then show what has gone wrong in the finance minister's planning," Stoiber told a news briefing in Munich.

The government's total net new borrowing is expected to amount to more than 34 billion euros ($41 billion) this year, instead of the 22 billion euros originally earmarked in the 2005

budget.

Oppositio n from Eichel

But Stoiber's proposal was flatly rejected by current Finance Minister Hans Eichel of the SPD, who wants to fill the gap by resorting to credit facilities not fully used in past years.

Symbolbild: Geldbörse

Not much left in Germany's coffers

With coalition talks not scheduled to begin formally until next week, the thorny matter of Germany's public finances has not so far been touched on in exploratory talks between the two sides.

But the portfolio of finance minister is likely to be allotted to the SPD in the future government.

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