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Last Updated: Tuesday, 18 November, 2003, 06:46 GMT
EU calls time on German budget
Euro banknotes
The EU plans to get tough with Germany over its huge budget deficit.

Under the rules of the EU's Stability Pact, eurozone countries are not supposed to run budget deficits above 3% of GDP (gross domestic product).

The EC wants Germany to cut its deficit by 0.8% next year and bring it down to 3% by 2005, after 4 years in violation.

Germany says that with its economy slowing, it needs more time to comply.

Germany defiant

And Germany's finance minister Hans Eichel has rejected the threat of sanctions if it cannot reach a compromise deal.

"A toughening of the procedure would be misplaced given Germany's cooperation," Mr Eichel said.

Germany is hoping to gain support from other EU countries for its stand against the stability pact.

EU finance ministers are set to consider the European Commission recommendations for Germany at their meeting on 25 November.

Germany is hoping that France, which has also breached the budget rules, will support its stand.

But France has already agreed a plan with the Commission to bring its deficit within the rules by 2005.

Budget battle

Last month, France escaped EU sanctions for breaking the 3% deficit rule.

French officials admitted the eurozone's second biggest economy would break the rules for three years in a row but said the deficit would be back within limits by 2005.

2003: 4.2% of GDP
2004: 3.8%
2005: 3.6%
2003: 4.2%
2004: 3.9%
2005: 3.4%
Source: European Commission
The Commission gave France a further year to get its finances in order, recommending that it make cuts in government spending.

Both Paris and Berlin have insisted that boosting economic growth should take precedence over cutting the deficit.

The Commission also said that Italy and Portugal are set to break the 3% deficit limit unless they make changes.

"Public finances are not in a good shape," said Pedro Solbes, European monetary affairs commissioner.

Slowing growth

The slowdown in Germany and France is causing serious problems for the whole eurozone economy.

The European Commission has cut this year's growth forecast for the eurozone to 0.4%, from its previous estimate of 1%.

Growth is expected to rise to 1.8% in 2004 and 2.3% in 2005, but, despite the pick-up, the Commission said unemployment is set to rise next year.

The eurozone's unemployment rate is expected to hit 8.9% this year and rise to 9.1% in 2004, before edging back to 8.9% in 2005.

The meagre growth seen this year in the eurozone was put down by the Commission to the uncertainty surrounding the Iraq war, the "prolonged stock market decline", and poor confidence among consumers and business.

BBC Europe business reporter Quentin Sommerville
"MEPs were unimpressed."

France escapes deficit fine
21 Oct 03  |  Business
France scolded over budget deficit
08 Oct 03  |  Business
France misses deficit deadline
03 Oct 03  |  Business
Most countries 'flouting EU rules'
11 Sep 03  |  Business
Germany drafts 'risky' budget
09 Sep 03  |  Business

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