Germany faces EU reprimand for excessive deficit

European UnionGothenburg, Sweden  - The European Commission is expected to reprimand the traditionally fiscally virtuous Germany for running a high budget deficit during the recession, it emerged Thursday.

Joaquin Almunia, the European Union's monetary and economic affairs commissioner, confirmed at a meeting of EU finance ministers in Gothenburg, Sweden, that his office would launch so-called "excessive deficit procedures" against nine EU countries in November.

Sources attending the meeting told the German Press Agency dpa that Germany would be among them.

Eleven EU member states are already under the commission's scrutiny for running budget deficits higher than the prescribed limit of 3 per cent of their gross domestic products.

"Next week, the European Commission will discuss reports ... on nine more countries that have notified to the commission that they will breach the 3 per cent reference value this year," said Almunia.

"We will consider opening excessive deficit procedures for these nine countries in mid-November," Almunia said.

The commission is obliged to launch such procedures when an EU member state breaches the bloc's strict rules on fiscal diligence. However, Brussels officials stress that the rules, revised in 2005, allow a certain degree of flexibility during severe downturns.

The German government has spent hundreds of millions of euros to shore up the economy and mitigate the impact of the downturn. One consequence is a budget deficit of just under 4 per cent of GDP this year and 6 per cent in 2010.

While the commission's planned action is little more than a formality, it is nevertheless set to reverberate in Berlin, where the incoming centre-right coalition headed by Chancellor Angela Merkel won last week's general election in part by promising to cut taxes.

Almunia rejected claims that opening procedures against 20 of the EU's 27 member states would undermine the credibility of the rules prescribed by the bloc's Stability and Growth Pact.

"Exactly the opposite (is true)," Almunia said. "The credibility of the pact will go to zero if we don't implement it."

The commissioner also stressed that the opening excessive deficit procedures was not in itself a punishment, but rather a means of helping member states have "a consistent fiscal policy."

Member states only face the prospect of a fine if they do not correct their deficits promptly.

Of the EU's biggest economies, Britain is forecast to run a deficit of more than 14 per cent, Spain of 10 per cent, and France of 8 per cent.  dpa