EU ministers back German deficit rap

EU finance ministers have approved an 'excessive deficit procedure' against Germany and urged the country to get its finances in shape as soon as possible.

The ministers adopted the European Commission's recommendation that Germany's budget shortfall had grown to alarming levels and said far-reaching reforms were needed, according to a statement issued during talks in Brussels.

The ministers, including German Finance Minister Hans Eichel, agreed that 'the German government should put an end to the excessive deficit situation as rapidly as possible'.

The EU's largest economy was suffering an extended slump caused by a low potential level of growth, the ministers said.

'It is in the hands of the German government to raise it significantly through coherent reforms, notably of the labour market. The Council strongly urges the German government to undertake the necessary steps,' they said.

The German public deficit shot up to 3.75% of gross domestic product in 2002, well over a 3% ceiling laid down in the euro zone's Stability and Growth Pact.

The European Commission has asked Eichel to draw up proposals by May 21 to solve Germany's budget problems and prescribed structural reforms to help get the economy back on its feet.

EU finance ministers have also issued France with an 'early warning' over its deficit, but French Finance Minister Francis Mer is reported to have resisted his colleagues' demands that he fix his government's finances.

Mer opposed recommendations that France get its budget in balance by 2006 and that it cut its public deficit by 0.5 percentage points of gross domestic product per year, sources said.

The French government expects a deficit of 2.6% of GDP this year, but the European Commission has warned that it is at 'large' risk of breaching the 3% limit.