Thursday, January 13, 2005

The cheque is in the post

In the list of the "top ten" lies, the old saw, "the cheque is in the post" is one that invariably features highly but, according to the latest German budget figures, this will soon be displace by another – "We will meet the Growth and Stability Pact criteria".

Despite continual protestations that the situation will improve, Germany's budget deficit has now swelled to the highest in almost a quarter of a century in 2004, exceeding the EU Growth and Stability Pact limit for a third straight year. It rose to 3.9 percent of GDP last year, from 3.8 percent in 2003.

Sylvain Broyer, an economist at IXIS CIB in Frankfurt, says that the German economy's export-led recovery has failed to benefit employment and has not been strong enough to bring down the cyclical deficit. "Public finances look worrisome," she adds.

The budget shortfall is in fact at its highest since 1981. Schröder's tax cuts, to the tune of €15 billion, failed to boost household spending, which fell 0.3 percent, while costs for unemployment, which rose to a seven-year high in December, also weighed on the budget.

Nevertheless, finance minister Hans Eichel is saying that it is his government's firm intention to comply with the deficit limit of 3 percent. Yea… and the cheque is in the post.

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