Germany, the biggest euro zone economy, risks running foul of the EU's tight budget rules again next year, even if Berlin insists it will be able to meet its deficit commitments in 2005, the Bundesbank warned today.
The German public deficit breached a key EU limit of 3% of gross domestic product (GDP) both in 2002 and 2003 and is expected to do so again this year, contrary to rules of the European Stability and Growth Pact.
While Berlin has pledged to bring its deficit ratio back below 3% next year, many observers remain sceptical that it will succeed. The Bundesbank appears to be among the sceptics.
'Despite expectations for a fall in the deficit, there is a substantial risk that the 3% limit will be exceeded again next year,' the German central bank wrote in its November monthly report, published today.
'It is to be welcomed that the government's target is to meet the 3% criteria in 2005. But it is not certain that the planned measures will be enough to achieve this,' the Bundesbank said.
Earlier this month, the government unveiled a package of additional measures aimed at ensuring the deficit ratio is cut to 2.9% in 2005. But most of the measures were simply one-off measures that will burden future budgets,' the Bundesbank complained.
The German central bank is not alone in having doubts about the state of the country's public finances. The so-called 'Five Wise Men', a panel of independent economic experts advising the government, estimated that the German deficit ratio could stand at 3.5% next year.
The International Monetary Fund has also recently expressed its scepticism that the German government will be able to reach its deficit target as promised.
