Germany to put growth first

Berlin plans to ignore the Stability Pact debt ceiling and start a dramatic deficit spending drive to stimulate the Germany economy.

The Finance Minister, Mr Hans Eichel, promised Brussels he would bring Germany's budget deficit under 3 per cent of GDP next year, but yesterday he said: "Without growth there can be no consolidation."

Chancellor Schröder decided during a midnight meeting last week to get away from consolidation and move towards a more flexible approach to debt and the Stability Pact, reported Der Spiegel yesterday.

His hand has been forced by negligible economic growth over the last three years, more than 10 per cent unemployment and a budget deficit this year that is likely to hit €45 billion, nearly a third higher than planned.

Berlin plans to pour money into research and education projects while ministers will be forbidden from using the language of budget consolidation and austerity for fear of dampening further the black public mood, already evident in weak consumer spending figures.

Civil servants will decide whether to finance the measures by selling off some of Germany's family silver, such as its valuable holdings in Deutsche Post or Deutsche Telekom.

A government spokesman denied yesterday that Berlin was abandoning any hope of ever satisfying the Stability Pact debt criteria and said it was rebalancing the emphasis to suit current economic circumstances.

News that Berlin is likely to continue flouting the Stability Pact guidelines in the coming years will anger other euro zone countries which adopted often painful measures to reduce their budget deficits.