Germany Faces Possible Warning from Brussels | Business| Economy and finance news from a German perspective | DW | 18.01.2002
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Germany Faces Possible Warning from Brussels

The EU Commission sees a real danger that Germany and Portugal will not meet the key Maastricht Treaty budgetary target. It may take the unprecedented step of issuing early warnings to the countries' Finance Ministers.


Difficult times for German Finance Minister Hans Eichel

The European Commission believes that Germany and Portugal are in danger of failing to meet the key budgetary target set out in the Maastricht Treaty on European Monetary Union, and is considering the issue of early warnings to these two states, Handelsblatt has learned.

The warnings, if issued, will the first of their kind to be issued since European Monetary Union was introduced on 1 January 1999.

The Maastricht Treaty commits the states participating in monetary union to keep their budget deficit – or new borrowing requirement – within 3% of gross domestic product.

Germany, Europe's largest economy, is feeling the effects of economic downturn more acutely than its eurozone partners.

Finance Minister Hans Eichel expects GDP growth of just 0.75% next year, while falling tax revenues and increased expenditure in areas such as unemployment benefit are set to raise the need for government borrowing.

Eichel is expecting the budget deficit to come in at 2.5% of GDP in 2002, while the forecasts from Germany's leading economic research institutes are higher, falling within the range 2.7–3.0%.

According to Commission estimates, meanwhile, the German deficit will be 2.7% of GDP, up from an estimated 2.5% in 2001.

According to Brussels-based people familiar with the situation , the Maastricht Treaty stipulates that the Commission has to react in cases such as this, i.e. where the deficit looks to be moving so dangerously close to the upper level permitted.

These people stress that there's no dissatisfaction with Eichel's budget policy, which is seen to be consistent with the goals set out in the 1997 Stability Pact for Growth and Jobs; that the process of deciding whether an early warning is in order will not be decided until 30 January; and that if a warning is issued, it will not constitute an official reprimand, merely a preliminary to one.

But still, in election year 2002, Germany's conservative opposition, the Christian Democratic Union, are bound to seize on the slightest hint of economic mismanagement by the government.

The CDU's budgetary affairs spokesman, Dietrich Austermann, said the threat of a warning confirmed that Eichel no longer had a grip on the budget.

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