20 February 2002, 14:03 Buba says German deficit target will need 'ambitious' spending cuts
FRANKFURT (AFX) - The Bundesbank said the German government will
have to undertake ambitious spending cuts if it is to meet its goal of
balancing the national budget by 2004.
Germany had made this commitment to the EU after escaping a formal
warning from the EU over its high budget deficit earlier this month.
"This will require an ambitious course of spending curbs on all
state levels, especially as further tax reductions will come into force
in 2003," the Bundesbank said in its February monthly report.
It added the decision of the EU Commission to give Germany an early
warning on its high budget deficit had been fully in agreement with the
regulations of the stability and growth pact.
However the Bundesbank said it is unlikely Germany will breach the
3.0 pct limit proscribed in the stability and growth pact this year.
The deficit rate this year should also be no worse than the 2.6 pct
of GDP recorded last year, the bank added.
"But this does not mean there is room in the budget for extra
spending or for tax cuts," the Bundesbank warned.
It also noted the requirements in the EU's stability programme for
Germany are more ambitious than the targets set out by the finance
ministry.
A breaking above the 3 pct limit would not only harm the stability
of the public finances but also make the European Central Bank's task
more difficult, it said.
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