Deficit woes prompt calls for rethink

Few experts believe that Germany will meet its budget deficit target this year.

A report yesterday said that the European commission expects the German deficit to soar above the 3% limit agreed at Maastricht. The business daily Handelsblatt quoted commission sources as saying they were pencilling in a figure of 3.7% of GDP.

The German finance minister, Hans Eichel, last week conceded that Berlin would breach the ceiling. Handelsblatt said he now expects 3.3-3.5%.

Berlin no longer aspires to meet the demands of the pact. At the weekend the foreign minister, Joschka Fischer, became the latest cabinet member to demand "more flexibility".

He told the news magazine Der Spiegel: "If the economic situation is bad, then we must be able to borrow more." Yet he saw no hope of Germany getting back under the 3% ceiling until 2004, at the earliest.

All this is richly ironic, since it was Germany who in the run-up to monetary union was loudest in calling for strict budgetary discipline, because they feared backsliding by the ostensibly lackadaisical Latins.

It is now obvious that national characters are of less importance than economics. Countries with generous welfare states such as Germany have inherently more difficulty respecting budgetary limits than those such as Spain where welfare provision is scant.

Germany is now in trouble because weak growth has shrunk tax revenues, while at the same time raising demand for unemployment benefits.

The commission wanted to warn Berlin formally earlier this year that it was heading for the rocks. But Chancellor Gerhard Schröder managed to get the warning shelved.

His manoeuvre exposed a serious fault in the pact: in essence, this is a game in which the players, and not the referee, decide when there has been a foul.