Germany may fail EMU criteria

 

GERMAN regional state ministers said yesterday Germany might fail to qualify for entry to European Monetary Union in 1999 if its tax revenue shortfall in 1997 is as big as Bonn fears it will be.

Bonn estimates that this year the tax revenue shortfall will be 26.5 billion marks (£11.1 billion) and 71.5 billion marks in 1997 - well below the projected figures of May 1995.

The figures were revealed by the regional state ministers meeting to discuss Chancellor Helmut Kohl's austerity programme, unveiled two weeks ago.

With the economy slipping deeper into recession, this could mean that Germany may be in for even more drastic spending cuts than even Kohl had in mind.

"The German government's savings programme is aimed at making sure the budget deficit does not exceed 3 per cent," said Ms Heidi Simonis, the Schleswig Holstein state premier.

"So in order to meet the Maastricht criteria, even deeper spending cuts will be needed," she said.

"We in the Social Democrats naturally believe that the criteria must be met. But if we cannot do that now, then better delay this until we can," she told a news conference at the end of the ministers' meeting.

Some ministers at the meeting agreed that it would he virtually impossible to save enough to plug the tax revenue shortfall this year and in 1997, the key year for the decision on who will enter European Monetary Union.

If Bonn fails to make up the balance by saving it would have to run up debts.

This raises the spectre of Germany - one of the prime movers behind EMU - failing to meet the criteria for entry, slated to begin in 1999, for the second year in a row.

Mr Kurt Biedenkopf, the Christian Democrat premier of Saxony state, said the regions would have to tighten their belts, as a delay in Germany's entry to the EMU was inconceivable.

"We must save. Talk of raising Valued Added Tax (VAT) is as wrong as debating whether to ease the Maastricht criteria," he told the news conference. "We must keep the pressure up."

The Maastricht Treaty on European Union sets reference levels for a country's budget deficit and public debt, putting the former at no more than 3 per cent of gross domestic product (GDP) and the latter at 60 per cent.

Germany, once dubbed Europe's economic powerhouse, failed to meet the criteria in 1996 with a budget deficit of over 3 per cent of GDP.