13 February 2002, 16:19 FOCUS German 2004 budget deal in reach only if GDP growth surprises, costs cut
---- by Marilyn Odchimar Gerlach ----
BERLIN (AFX) - Germany's pledge to bring its budget close to a
balance by 2004 is an ambitious goal and only likely to be achieved if
the economy stages a strong recovery and a new austerity plan is
launched, economists said.
They said they do not expect Germany to unveil such an austerity
plan before the September national elections or introduce any unpopular
measure that would politically hurt chancellor Gerhard Schroeder.
Schroeder, whose challenger Edmund Stoiber is using Germany's weak
economic performance as the main electoral issue, avoided a public
humiliation after the euro group finance ministers yesterday voted not
to issue an official European Commission warning on its swelling budget
deficit.
Germany in return made several promises, including bringing its
budget "close to a balance" by 2004.
Germany's previous target had been a balanced budget in 2006 but
economists pointed out yesterday's deal was so vaguely worded that
bringing the budget "close" to a balance in the next two years leave
some room for maneuver for the government on what exactly the benchmark
is.
Dieter Vesper, public finance expert in the economic institute
Deutsche Institut fuer Wirtschaftsforschung DIW, told AFX News a
balanced budget by 2004 depends largely on how the economy performs.
"I think it's a very, very ambitious goal... We need a growth rate
of 3 pct or more every year -- this year, in 2003 and in 2004 -- and I
think it's not possible," Vesper said.
"If he (Eichel) wants to have a balanced budget target in 2004, he
has to have additional cuts in expenditure and consider raising taxes.
But I think he'll prefer the first way -- cut expenditures," he added.
"I think he'll make a decision on cutting expenditures after the
election," Vesper said.
Two weeks ago, Eichel said a balanced budget in 2004 will be "very
difficult" to achieve based on his expectation of a 2.25 pct growth
rate in Germany next year and the forecast 0.75 pct growth this year.
A finance ministry spokeswoman today pointed out however that the
latest pledge is achievable based on the European Commission's higher
growth assumptions of 2.5 pct in 2003 and 2004.
Eichel yesterday told journalists the commitment to bring the
budgetary position close to a balance in 2004 means that if an economic
upturn brings an increase in tax revenue, it would have to be used on
measures to lower the deficit.
But economists said the government needs to come up with new
austerity measures in 2003 and 2004 that are more stringent than those
launched in 2000.
"There has to be a reduction of expenditures in the central and
regional governments, as well as in social security... We need cuts
that are much, much more severe than in 2000," said chief economist
Joachim Scheide of the Kieler Institut fuer Weltwirtschaft.
Scheide said if the government depends alone on GDP growth to
achieve a balanced budget in 2004, "then we need a super boom to do
that."
Economist Gerd Hassel of BHF Bank said the 2004 target is "too
optimistic because economic growth will not be so strong" as Eichel had
presumed.
"If the target is 2004, then GDP this year should be 0.8 pct and
above 2 pct next year. Eichel's forecast of 2.25 pct in 2003 is a bit
optimistic. My forecast is 1.7 pct and about 2 pct in 2004," Hassel
said.
"One needs strong growth, at least 2 pct in 2003 and 2004, in order
to achieve the 2004 budget target," he added.
"There has to be new saving measures or new taxes after the
election. One of these measures would have to be done," he said.
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