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Business

German Debt Reaches New Record High

Finance Minister Hans Eichel has admitted that this year's debt could be drastically higher than expected – close to 42 billion euros. That’s more than double earlier forecasts and could lead to serious consequences.

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What's a few more euros here or there, when the debt is already so high?

Germany’s finance minister was in the hot seat again this weekend. The man who took office promising to balance the budget now finds himself struggling to explain why the country’s deficit continues to rise.

On Saturday Hans Eichel admitted borrowing for 2003 could amount to as much as 42 billion euros. "Up until now I’ve assumed the deficit would be approximately double the earmarked amount of 18.9 billion euro," he said in Berlin. But now it looks like the mountain of debt will grow even more, according to German public broadcaster ZDF.

The television station has reported that finance ministry sources are pinpointing the amount at close to 41.9 billion. If that’s the case, the debt accumulated under the current Social Democrat administration of Chancellor Gerhard Schröder would surpass the previous record of 40 billion reached back in 1996 under former Chancellor Helmut Kohl of the conservative Christian Democrats Union.

Eichel explained the larger than predicted deficit was the result of the stagnating economy. He blamed the poor economy for whittling away at tax revenue while at the same time gobbling up increased expenditures to compensate for the massive unemployment benefits.

Breaking with budget discipline

Eichel also admitted that if Germany’s debt is as high as feared, the country’s deficit will exceed four percent of gross domestic product, well over the three percent limit set in the Stability and Growth Pact for the common currency euro zone. This would then be Germany’s third violation and the country could risk hefty fines from the EU.

According to the news magazine Focus, the EU Monetary Commissioner Pedro Solbes is forecasting a clear violation of the deficit guidelines. His report, which is due on Oct. 29, will reportedly show that Germany’s deficit for 2003 exceeds even five percent of the country’s GDP.

In addition, both the European Union and the International Monetary Fund are predicting a zero-percent growth rate for this year in Germany, meaning that an immediate reduction in the deficit is not in the near future. In 2004 growth will only recover by a slight two percent.

Calls for resignation

Criticism for Germany’s obvious violation of budgetary discipline is not only coming from Brussels. Opposition party politicians in Berlin are calling for Eichel’s resignation. The neo-liberal Free Democrat Party have accused the finance minister of failing to keep a closer eye on the budget. The next generation will have to pay the price for such oversight in higher taxes, said the FDP finance expert Jürgen Koppelin.

"The savings commissioner has turned into the debt accumulator of the nation," the politicians said in Berlin on Saturday.

Friedrich Merz, the CDU’s parliamentary party deputy, was also quick to criticize Eichel. If Germany does overstep the Stability Pact by such a gross amount, than it would be one of the "trailbllazers in the EU for violating the terms of the Maastricht Treaty. That would destroy one of the joint legal frameworks which we agreed to in order to stabilize our currency," Merz said.

But the majority of the German people don’t seem to be quite as alarmed about the deficit as the politicians themselves. A survey conducted by the polling institute Infratest for the Welt am Sonntag newspaper on Sunday showed that 49 percent of those questioned were against Eichel’s resignation, compared to 45 percent in favor.

Whether that slim favorability rate is enough to keep Germany's über-accountant out of the hot seat in the long run remains to be seen. At the end of the month the finance ministry will announce its final figures for the revised budget and growth prognosis for this year.

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