Germany is set to breach the EU's budget rules for the fifth year in a row in 2006 as growth in the euro zone's biggest economy remains sluggish, according to the latest forecasts by the government's so-called 'Five Wise Men'.
The German economy is set to expand by 0.8% this year and then only slightly faster by 1% next year, the economic advisors to the government forecast in their latest annual report.
The panel, which actually comprises four men and one woman, is therefore slightly more cautious on growth than Berlin itself, which is officially pencilling in growth of 1.2% next year.
The slow rate of growth would mean that the state of the country's public finances would remain very tight, the experts said. 'In the current year, German growth remained subdued,' the Five Wise Men found.
While the external trade environment was favourable, the positive impulses from exports did not spring over to domestic demand. 'The registered number of unemployed rose once again and the budget situation remained precarious,' the panel said.
And next year, the economy 'is not expected to develop very dynamically either'. 'At 1%, growth will again be too weak to bring about any lasting improvement on the labour market,' the report added.
The persistent weakness of growth was attributable partly to high energy prices, which will further undermine private households' purchasing power next year, they said.
Under the terms of the European Stability and Growth Pact, euro zone members are not allowed to chalk up deficits in excess of 3% of GDP. But Germany already breached that rule in 2002, 2003 and 2004 and is expected to do so again this year and next year.
The experts - Peter Bofinger, Wolfgang Franz, Bert Ruerup, Beatrice Weder di Mauro and Wolfgang Wiegard - said that the deficit ratio would come down only very slowly from 3.7% in 2004 to 3.5% in 2005 and then to 3.3% in 2006.
But it was still possible for Germany to bring the ratio back below the 3% rule next year, the wise men said. 'Savings of around _6 billion would suffice,' they wrote. 'The goal is still achievable.'
The savings could be achieved by abolishing or lowering tax breaks and subsidies, such as those for own-home purchase, commuting, and Sunday, holiday and night shifts, the experts suggested.
