Brussels, 02/07/2003 (Agence Europe) - Given the "considerable additional costs" caused by the "stagnation of the economy and sharp rises in unemployment", the German state deficit will reach "around" 3.5% of GDP this year, admitted the German Finance Minister for the first time on Wednesday. He had previously confined himself to indicating that the state deficit, which reached 3.6% in 2002, would exceed the 3% threshold laid down in the Stability and Growth Pact again this year. The authorities also officially admitted that a state deficit of over 3% was possible next year as well: "even in 2004, there is the risk that we will fail for the third time in a row to meet the Maastricht deficit criterion, if nothing is done to stop it", indicated Finance Minister Hans Eichel. Last Sunday, he showed a bit more optimism, declaring that as tax cuts initially planned for 2005 were being brought forward to 2004, the state deficit should be at "exactly" 3%, provided that growth attains 2% as officially forecast.
Commissioner Pedro Solbes warned the German government the day before that a state deficit of above 3% of GDP in 2004 would be "incompatible with our joint budgetary rules" (EUROPE of 2 July 2003, p.12). In a speech in Berlin, he pointed out that the countries of the Euro-Zone cannot record a deficit greater than 3% of GDP for three consecutive years. Germany must therefore bring its deficit below 3% of GDP in 2004. If it does not, the Commission may open new proceedings, which could end with the imposition of a fine equivalent to up to 0.5% of GDP.