German deficit breachesbudget rules as exports jump

24th August 2004, Comments 0 comments

24 August 2004 , WIESBADEN - New figures Tuesday show Germany breached Europe's strict three percent deficit limit by a full percentage point in the first half of this year, with the economy's modest 0.5 percent growth powered mainly by improved exports. The federal, state and local governments spent EUR 42.7 billion more than their income from January to June. That amounted to a deficit of four percent of Germany's gross domestic product (GDP). In the same six months last year, the deficit had been 3.6 p

24 August 2004  

WIESBADEN - New figures Tuesday show Germany breached Europe's strict three percent deficit limit by a full percentage point in the first half of this year, with the economy's modest 0.5 percent growth powered mainly by improved exports.

The federal, state and local governments spent EUR 42.7 billion more than their income from January to June. That amounted to a deficit of four percent of Germany's gross domestic product (GDP). In the same six months last year, the deficit had been 3.6 percent.

Under Europe's Growth and Stability Pact, which sets tough rules for members of the euro, Germany is supposed to keep its annual deficit under three percent.

A spokesman for Finance Minister Hans Eichel in Berlin disputed the significance of the new figure, saying it did not apply to the full year.

"Income and expenditure is not evenly spread, and a large element of this is estimated, so a meaningful interpretation of the figure is not possible," he said.

The release of deficit figure coincided with data confirming Germany's second-quarter grwoth rate as 0.5 per cent with rising exports helping to compensate for stagnating domestic demand.

The figure, adjusted for calendar and seasonal effects, is in line with earlier preliminary numbers.

The Federal Statistics Office said that growth was based mainly on stronger exports with private domestic consumption still falling. Germany's economy last achieved a similar rate of growth at the start of 2001. In the first quarter of this year, growth came in at 0.4 percent.

Quarter to quarter, Germany's export surplus rose 0.5 percent while private consumption only increased 0.1 percent.

The pickup in the German economy follows three years of economic stagnation which has been a major factor in the nation's expanding deficit.

Germany can only escape a breach of the Maastricht limits by drastically increasing its GDP or by forcing all tiers of government to cut spending. Continued high borrowing is likely to water down the value of the common euro currency.

Like Eichel, the Federal Statistics Office cautioned that the preliminary six-month deficit could not necessarily be projected to the full year. Last year's full-year deficit in Germany was 3.8 percent of GDP, the second annual deficit to breach Maastricht.

"The full-year deficit could be higher or it could be lower. In the past, it has varied a lot," said a statistics spokesman.

European Union leaders are to discuss next week whether to penalize Germany and France for excessive deficits.

EU finance ministers have decided in the past not to penalize the two heavyweights, but the European Court of Justice ruled in July that this suspension of the proper procedures was invalid.

[Copyright DPA with Expatica]

Subject: German news

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