Berlin's deficit gap closes after four years 05/06/2007 00:00

5 June 2007

LUXEMBOURG (AP) _ The EU lifted the threat of sanctions against Germany on Tuesday, saying that after four years of excess budget deficits Europe's largest economy had been brought in line with the financial rules that underpin the stability of the euro.

The EU finance ministers similarly let Greece - which ran afoul of the euro rules through shoddy bookkeeping and statistics - and Malta off the hook in finding that they also now comply with the euro rules.

Germany's exit from the doghouse by lowering its deficit under 3 percent of gross domestic product, was a relief for both Berlin and the European Commission.

Its violation of the rules was an embarrassment that undermined efforts to keep the currency, which is used in 13 of the 27 EU nations, stable. This was especially so since those rules _ including the tight ceiling on the annual budget deficit and full independence for the European Central Bank - were practically dictated by Germany when the euro came into circulation in 2002.

EU Economic and Monetary Affairs Commissioner Joaquin Almunia praised Germany on Tuesday for its ''difficult'' work in coming under the threshold by a very wide margin in 2006 _ a year earlier than ordered and driven by healthy economic growth and ''sustainable'' policies.

This is in contrast to Greece which, he said earlier, had only come under the limit thanks to better-than-expected economic growth that has fattened tax receipts and one-time measures.

He also warned that all EU nations _ including France _ needed to learn the lessons of the past and cut debt while they enjoy good revenues.

German Finance Minister Peer Steinbrueck beamed, telling reporters: ''I never want to have such an excessive deficit procedure again!''

The EU finance ministers said Germany's 2006 deficit was only 1.7 percent of GDP, down from 4.3 percent in 2004. Almunia said it could even come close to zero next year although Germany has set a looser 2010 deadline for itself.

On the downside, however, the ministers said Germany's overall public debt ''amounted to 67.9 percent in 2005 _ well above the EU's 60 percent reference value _ and is projected to remain at 65.4 percent in 2007.''

The German deficit shot up to 3.7 percent in 2002, triggering a threat of sanctions, but the deadlines were extended as Germany struggled to curb spending.

The EU finance ministers lifted the threat of sanctions against Greece, which posted a 2.6 percent budget deficit last year, down from almost 8 percent in 2004. Greece's overall public debt stands at 108.5 percent of GDP but is ''sufficiently diminishing towards the EU's 60 percent reference values,'' the finance ministers said.

Georgios Alogoskoufis, the Greek finance minister, told reporters his country will remain under the 3 percent ceiling from now on as the economy grows strongly as it benefits from better trade with booming Turkey and the Balkan region.

This meant higher euro-zone interest rates _ expected to increase further this year _ are not a problem, he told reporters.

''Tighter monetary policy is not bad. There is always a risk of overheating in a fast-growing economy,'' he said.

In 2004, the EU put Greece's budget deficit at 5.5 percent of GDP after learning Athens had provided flawed statistics about its economic performance in the years leading up to the introduction of the euro. Greece spent excessively on the 2004 Olympic Games, a fact hidden by poor statistics-keeping.

This spending, however, fueled the initial expansion that has now come to rely on private investment and exports, Alogoskoufis said.

EU finance ministers also praised Malta _ whose budget deficit surged to almost 10 percent in 2004. The EU's smallest member reduced that to 2.6 percent last year ''in a credible and sustainable manner,'' the finance ministers said. This paves the way for the country to join the euro area next year.

AP

Subject: German news