Germany said today a weak economy gave it no choice but to let borrowing this year soar as it formally notified the European Commission it would bust EU budget deficit limits for a second year running.
But in an effort to head off possible financial penalties from Brussels, Berlin said it could cut its deficit next year to within the EU's limit of 3 per cent of gross domestic product (GDP), a goal cast in doubt this week by leaked IMF forecasts.
In a statement announcing its twice-yearly filing of budget data to the EU executive, the German Finance Ministry said it now forecast a 2003 budget deficit of 3.8 per cent of GDP.
Previously it had predicted the deficit would be around 3.5 per cent. However, it revised down the 2002 deficit to 3.5 per cent from 3.6 per cent.
The ministry said it was impossible, because of the weak economy, to avoid letting "automatic stabilisers" work - shorthand for letting budget deficits rise rather than cutting spending or raising taxes to cover revenue shortfalls.
Under the EU's Stability and Growth Pact, Germany could face financial penalties if its budget deficit exceeded 3 per cent of GDP again in 2004. The pact, agreed before the 1999 launch of monetary union, aims to underpin the euro.
European Economic Affairs Commissioner Mr Pedro Solbes repeated today that Germany would face the same penalties as other states if it broke the deficit rules again. Mr Solbes noted that Berlin faced the cost of rebuilding the former East Germany.