GERMANY will break the EU budget rules next year for the fourth year in succession, according to a leaked copy of a report from the International Monetary Fund.
The IMF said Germany’s public deficit would reach 3.3 per cent of GDP in 2005, exceeding yet again the 3 per cent limit imposed by the EU’s Growth and Stability Pact, Handelsblatt, the German newspaper, reported.
Germany breached the limit on borrowing in 2002 and 2003 and is now widely expected to exceed it in 2004 after announcing a public deficit of 4 per cent of GDP last week.
The German Government has announced its intention of meeting the pact this year and next. But the IMF believes that it will not meet the target until 2006, when the deficit ratio is expected to fall to 2.6 per cent, the paper said.
GDP growth is projected to reach 1.9 per cent this year, up from a previous 1.8 per cent prediction, rising to 2 per cent in 2004 and 2.4 per cent in 2006.
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The European Commission will meet on Friday to plan how to revise the stability pact, which has become a dead letter after being repeatedly broken by Germany and France.
The commissioners will look at ways to loosen its strictures to take more account of long economic slowdowns. They are not expected to reach a final decision.
The day before, the European Central Bank (ECB) is expected to announce that eurozone interest rates are unchanged for the month at 2 per cent.
Jean-Claude Trichet, President of the ECB, who will present his latest views on the eurozone economy, will dampen down fears over eurozone rates and is also set to paint a cautiously upbeat view on growth despite setbacks in Germany. Borrowing costs on the Continent are likely to remain unchanged until 2005.
ECB forecasts are for a gradual recovery in the eurozone economy, with inflation slowly coming back below its 2 per cent target.
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M Trichet is likely to reinforce his belief that the recovery is gathering strength on the Continent.
But analysts expect he will wait until at least next February before raising borrowing costs.
Investment houses are unanimous in forecasting a no-change decision on Thursday, according to a recent Reuters poll. Borrowing costs in the eurozone have been pegged at 2 per cent for more than 12 months.