The beleaguered German economy will notch up a record fiscal deficit of over E40bn this year, according to the Finance Minister Hans Eichel. This total will be nearly double the previous forecasts and could yet rise to 5pc of gross domestic product (GDP) by the end of the year. Eichel admitted at the weekend that the Government will break the previous national debt record held by the Kohl administration. Taken with the combined debts of the federal states, Germany is now E80bn in the red. Eichel said that the deficit would overshoot estimates due to falling income and higher spending on jobless benefits.
Eichel recently caved in to pressure from Chancellor Schroder and his cabinet colleagues to abandon debt-reduction policies and to cut taxes and help the Government spend its way out of the economic slump. He will have to borrow an additional E5bn next year to finance tax cuts. Adding to his difficulties, tax takings this year will be reportedly E8bn lower than forecast. On Friday, Schroder will present a package of reforms designed to kickstart the eurozone's largest economy after three years of negligible growth//www.fxcentre.com