Germany is set to breach the EU Stability and Growth Pact next year if the Government proceeds with its plan to borrow to fund planned tax cuts, according to the Bundesbank. While the tax cuts are in principle welcome, they could at the same time be "regrettable" because the 3pc of GDP limit would be exceeded, the central bank said in its August monthly report. It said that if Germany wants to cut taxes and avoid breaching the pact for a third straight year, then it must increase its efforts to find money elsewhere. The Government needs to find an extra E7bn to pay for tax cuts it wants to introduce on 1 January 2004. It has said it will generate some E2bn through privatisations and around E1bn from scrapping state subsidies, with the remainder to be financed through extra borrowing. EU economic and monetary affairs commissioner Pedro Solbes said in an interview today that the Commission will recommend imposing fiscal sanctions on Germany if it breaches the pact. A spokesperson for the Commission said this afternoon that Solbes' warning also applies to France.//www.fxcentre.com