BERLIN, July 16 - Bundesbank President Ernst Welteke was quoted on Wednesday as saying he would not bet on any further interest rate cuts from the European Central Bank at the moment because they would not benefit the economy. In an interview with Bild newspaper, Welteke, who is a member of the ECB's policymaking council, said: "I would not, at least at this moment, bet on further falling interest rates." He was answering a question on whether people planning to buy a house should wait for interest rates to fall even further. "The interest rates are at an historic low level and the liquidity is sufficient," Welteke added. "Further interest rate cuts would probably not have any positive effects on the economy."
The ECB slashed borrowing costs by half a percentage point to two percent in early June, and has since said it expected rates to remain on hold for a considerable time to come. Welteke also said German government plans to launch a package of tax cuts next year would have little impact on the economy and warned the cuts should not lead to more government borrowing. "The effect of the tax cuts will not be very big," Welteke said. Germany was suffering from structural rather than economic problems as well as a crisis in confidence, he said, and these would only be solved when there were clear perspectives for the future. "And part of that is that government debt should not rise further." He said it would be preferable to fund the cuts by reducing government subsidies in areas like tax breaks for commuters and homebuilders.
The government intends to bring forward tax cuts planned for 2005 by a year to stimulate sluggish economic growth and has already said the lost income will be made up by a mix of subsidy cuts, new borrowing and privatisation revenues. But many observers expect the bulk of financing to come from borrowing, sparking concerns that Germany may breach the budget deficit rules in the European Union's Stability and Growth Pact for the third year in a row next year. "Germany helped implement the EU Stability Pact. If we don't take it seriously, who will?" Welteke said. Hit by rising jobless numbers and a stagnant economy, Germany's budget deficit rose to 3.6 percent of gross domestic product (GDP) in 2002 and is expected to be 3.5 percent this year, breaking the rules limiting deficits to three percent of GDP.//