German budget deficit draws EU warning

BERLIN -- The German government cut its economic growth forecast Wednesday and raised its prediction for the 2002 budget deficit for the second time in four months.

The European Commission urged member states to warn Germany to get its budget back in line. Such an EU reprimand would be the first of its kind and an embarassment for the economic powerhouse.

Germany's public-sector deficit is anticipated at roughly 2.5 percent for 2002, the government said in an annual economic report. The government had predicted a 2 percent deficit in late November, up from a previous forecast of 1.5 percent.

European Union member states face a fine if they surpass an EU-imposed deficit ceiling of 3 percent.

On Wednesday, EU Monetary Affairs Commissioner Pedro Solbes said the commission would advise member states to issue a first-ever "early warning" to Germany and Portugal, which faces a similar shortfall, at a Feb. 12 meeting.

"There should be a warning so that the currency and the economy are protected," European Commission President Romano Prodi said in Brussels, Belgium.

Germany also said Wednesday that its real gross domestic product growth would amount to just 0.75 percent this year, down from an October estimate of 1.25 percent growth and the 2.25 percent it initially predicted last April.

In comparison, growth was 0.6 percent last year and 3 percent in 2000. Also, the unemployment average in 2002 was expected to near 4 million, up from 3.85 million in 2001, the report said.

Still, Finance Minister Hans Eichel insisted Germany's economic recovery was near and pledged to stick to a high-profile plan to balance the budget by 2006 through steady annual cuts in new borrowing.