Eichel warns of tough times

23rd June 2004, Comments 0 comments

23 June 2004 , BERLIN - Warning that Germany is in a "difficult financial situation," Finance Minister Hans Eichel said Wednesday he might have to raise extra funds next year to meet the eurozone budget deficit limit. Eichel, at a news briefing on Germany's 2005 budget, vowed he would not increase new borrowing to raise revenue but refused to say if he planned to cut state spending, axe subsidies or raise taxes. "You can be sure that I am thinking intensely over other measures," said Eichel who declined to

23 June 2004

BERLIN - Warning that Germany is in a "difficult financial situation," Finance Minister Hans Eichel said Wednesday he might have to raise extra funds next year to meet the eurozone budget deficit limit.

Eichel, at a news briefing on Germany's 2005 budget, vowed he would not increase new borrowing to raise revenue but refused to say if he planned to cut state spending, axe subsidies or raise taxes.

"You can be sure that I am thinking intensely over other measures," said Eichel who declined to elaborate.

Reducing spending would be difficult for Eichel. The ruling Social Democrats (SPD) - after being mauled in elections - are pondering measures to polish their image as the social welfare party.

Lower revenues and higher spending mean Germany will overshoot the 3 percent of GDP budget deficit limit for a third year in a row in 2004.

Eichel pledged Berlin would do everything possible to make sure there was no overshoot again next year.

But he complained the 3 percent rule needed to be viewed in a far more flexible manner.

Eichel said failing to meet the deficit limit needed to be seen as a less serious violation in cases where a country was suffering from economic weakness.

"We don't want to put the criteria in question but rather its interpretation," said Eichel, adding that Germany was coming out of three years of economic stagnation.

Last year Germany and France - which has also overshot the limit in recent years - blocked European Union moves which could have resulted in massive fines or orders from Brussels for spending cuts.

The minister noted that while Germany's economy was starting off well in the run-up to summer there were still shadows.

Recovery is again being fuelled by the world economy with domestic demand remaining "fragile," said Eichel. Weak domestic demand has been a German economic bane over the past decade.

"I don't want to whitewash things: we are currently in a very difficult financial situation," admitted Eichel.

Nevertheless, he predicted economic growth of 1.5 percent to 2 percent in 2004, with a growth rate over 2 percent in 2005.

Germany plans to sell its remaining stakes in Deutsche Telekom and Deutsche Post to help fund the 2005 budget.

The state still holds 26 percent of Telekom and 20 percent of Deutsche Post which it plans to sell to the state-owned KfW bank.

Opposition parties term the plan creative accounting but analysts predict the shares will be sold to private investors when the price improves.

Eichel's 2005 budget calls for a small increase in state spending to EUR 258.3 billion next year.

The plan also aims to restrict new net borrowing by Berlin to EUR 22 billion compared with this year's targeted EUR 40.5 billion.

Leading experts swiftly attacked the German government's budget figures.

Rolf Pefferkoven, a member of the finance ministry's own council of advisers, said the 2005 budget was setting revenue projections too high while underestimating spending.

Karl Heinz Daeke, president of the Federation of Taxpayers, was blunter.

"The 2005 budget is built on sand," warned Daeke.

DPA

Subject: German news

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