EC casts doubt on German revival plan

The European Commission raised concerns today about the viability of the German government’s plan to bring its budget deficit back in line with euro rules next year.

Tackling the euro-zone’s sickly economic giant, the commission said Germany’s growth projections for this year of 1.7% were in line with its own.

But it added it was worried about the numbers for 2005, when Germany has pledged to get its red ink back under the euro pact’s limit of 3% of gross domestic product.

Germany’s forecast of 2.5% growth next year may be too optimistic, the commission said, and spending on pensions, health care and unemployment could exceed expectations.

The commission’s autumn forecast foresees 1.8% growth for Germany next year.

However, EU economic affairs commissioner Pedro Solbes offered an olive branch, noting Germany’s commitment to take “additional measures” if needed to get the deficit in line next year.

“We think this is very positive,” he said in Brussels.

He said the differences between Brussels and Berlin were largely over when Germany’s recently-enacted reforms in social programmes would boost the economy.

“Germany considers that the implementation of these structural measures will have a very positive impact immediately after,” Solbes said. “This is not excluded, but it is not guaranteed either. That is the reason why we have some doubts.”

Germany, along with France, has repeatedly broken deficit limits as it tries to spend its way out of economic doldrums. So far, both countries have avoided penalties.

They used their combined clout at a November meeting of EU finance ministers to avert disciplinary action recommended by the commission. Instead, they got off with a pledge to comply by 2005.

The commission is challenging the ministers’ action in court, but also is considering reforming the budget rules, known as the stability and growth pact.