/www.bloomberg.com/ By Andreas Scholz and Brian Parkin
Frankfurt, (Bloomberg) -- German Finance Minister Hans Eichel said a long war in Iraq may force the government to lower economic growth forecasts and would derail budget plans.
A drawn-out military conflict ``could create a completely different situation in the world -- that's clear,'' Eichel said in an interview. ``Then we would have to see. That would affect us all.'' The government will update its forecast for economic growth this year, now at 1 percent, in May, he said.
The German economy grew 0.2 percent in 2002, the slowest in nine years. Unemployment rose to 4.36 million in February, the highest in almost five years, the Federal Labor Office said today. Rising joblessness and concern about a possible war in Iraq pushed consumer confidence to an eight-year low this month.
The U.S., the U.K. and Spain plan to seek United Nations backing for a resolution calling on Iraqi President Saddam Hussein to disarm or face military action. The U.S. and U.K. have deployed 255,000 troops in the Persian Gulf.
The European Central Bank trimmed its benchmark refinancing rate by a quarter of a percentage point to 2.5 percent, the lowest in almost 3 1/2 years, to help the economy of the dozen countries sharing the euro recover. The bank said a bigger reduction won't spur growth as the threat of war in Iraq grows.
``It was the right step, and will help psychologically at least,'' Eichel said. ``The banks must pass it on and customers should go to those banks that incorporate those rate cuts.''
Widening Deficit
Dwindling tax revenue and rising welfare costs, caused by the economic slowdown, last year prompted Germany's budget deficit to widen to 3.6 percent of gross domestic product, exceeding a European Union limit of 3 percent. Eichel has said he is aiming to bring the deficit below that level this year.
To lower the deficit, Eichel plans to eliminate as many as 40 tax concessions. The tax amendments require the approval of the upper house of parliament, or Bundesrat, which is dominated by the opposition Christian Democratic Union.
Meeting the EU's deficit limit ``will be very close,'' he said. ``It depends on two factors: growth must reach at least 1 percent and all the tax concession reductions must go through. The Bundesrat has full responsibility for this.''
Eichel said the euro's appreciation against the dollar won't hurt the economy. The rate of $1.10, which the euro reached earlier this week, ``is not a pain threshold,'' he said.
The interview with Eichel will be broadcast in full on Bloomberg German television later today.