Germany may avoid reprimand

Germany appears certain to avoid an unprecedented "early warning" over its budget deficit when EU finance ministers meet in Brussels today. But there was no sign last night of the shape of a possible compromise that could avoid a damaging clash with the Commission.

The Commission insisted yesterday it would ask ministers to approve its early warning to Germany and Portugal, on the basis that both countries are running deficits too close to the limit of 3 per cent of GDP laid down in the Stability and Growth Pact. Germany's deficit last year was 2.6 per cent of GDP and the Commission predicts it will rise this year to 2.7 per cent. In a sign of its determination, Commission president Mr Romano Prodi will attend today's meeting with Economic Affairs Commissioner Mr Pedro Solbes.

"The issue of credibility of the treaty and the process is very important," said Mr Gerrasimos Thomas, spokesman for Mr Solbes. But Germany and Portugal already have the declared support of Britain and Luxembourg in rejecting the early warning,making a qualified majority in support of the Commission impossible to achieve.

"Far too narrow a view of the stability pact has been taken by the Commission generally," Britain's Chancellor Gordon Brown said at the weekend. Among the possible compromises are a postponement of the warning until more economic data are received or a decision by ministers to "note" the Commission's concerns.

The Minister for Finance, Mr Mc Creevy, is likely to back a compromise, despite his declaration last month that the ministers should ensure big and small countries are treated even-handedly.

Many European commentators, including Germany's Frankfurter Allgemeine Zeitung, have warned that a failure to censure Germany would suggest the EU is not prepared to apply its rules to larger member-states. "Compared to Ireland, which both then and now could present a healthy fiscal report card, Germany must be judged more severely because of its greater economic weight. If the finance ministers duck the issue now and settle for only a mild chastising of the German government, more damage will be done than merely that to the authority of the Commission. The smaller member-states will then justifiably lament that they are subject to the full force of the EU treaties, while the big countries are not, " the paper said in an editorial.

But Germany's chancellor, Mr Gerhard Schröder, said yesterday the warning was unwarranted, not least because the Commission has acknowledged Germany is pursuing the right economic policies. "If we are pursuing the right policies and we are not breaching the Stability Pact limit, where is the justification for a measure which has undeniable political consequences?" he said.