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Last Updated: Tuesday, 9 September, 2003, 12:42 GMT 13:42 UK
Germany drafts 'risky' budget
Hans Eichel
Even Mr Eichel has little confidence in growth forecasts
German Finance Minster Hans Eichel has asked parliament to back what he admitted was a highly risky 2004 draft budget.

By combining borrowing, projected revenue from privatisations and an optimistic assessment of economic growth prospects, Mr Eichel hopes to keep Germany's budget deficit within the fiscal limits set by Brussels.

Germany has been the most glaring delinquent from the so-called Stability Pact, which prevents eurozone member states from running excessive deficits.

But Mr Eichel's assumption of 2% economic growth next year has been criticised by the opposition, a level of uncertainty admitted in the budget text itself.

"The probability has risen that... growth will be less than expected in the government's spring forecasts and that growth in 2004 will not be enough to create employment," the budget says.

Out of pocket

If the economy underperforms, Mr Eichel will have either to allow the deficit to exceed the Stability Pact, or increase borrowing.

As it is, budgeted borrowing, at 29bn euros (20bn; $32bn), is twice the level originally aimed for.

Weak economic growth has an especially acute effect on government finances, because it reduces tax revenue and increases spending on welfare.

In the meantime, the government is committed to a programme of tax cuts, worth 15.6bn euros, which aims to stimulate the recession-mired economy.

The government is in the middle of its "Agenda 2010" programme, which seeks to liberalise and slim down the country's health and welfare systems and labour market.

Divided opposition

Mr Eichel appealed to parliamentarians to see the budget within the context of the wider reform programme.

So far, he seems to be having some success in warding off critics.

The opposition is divided over its attitude to the government's reforms, since they embody at least some of the policies it has long advocated.

It is likely that a more definite opposition policy will be hammered out after Bavarian regional elections later this month.

Politicians have plenty of time to consider their position: the draft budget will not be voted on until November, and may well be extensively modified before then.


SEE ALSO:
Can Germany bounce back?
14 Aug 03  |  Business
Germany falls into recession
14 Aug 03  |  Business
Germany's cold economic winds
14 Aug 03  |  Business
German cabinet backs reform
13 Aug 03  |  Europe
German job market 'on the mend'
08 Jul 03  |  Business
Germany divided over tax cut plans
07 Jul 03  |  Business
Germany bets on tax cuts
30 Jun 03  |  Business


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