Germany is in danger of not meeting its pledge to cut the budget deficit to within EU limits by 2005, the European Commission said today.
In its last round of assessments of the medium-term budget plans of European Union states, the Commission also gave overall positive judgments on Spain, Belgium and Portugal, although it highlighted some of the risks.
"The Commission sees two main risks that endanger Germany's commitment to bring the deficit below three per cent of GDP by 2005," the EU executive said in a statement, referring to the deficit limit set under the Stability and Growth Pact.
"The first risk concerns the real growth forecast for 2005," it said, noting Berlin expected a 2.25 per cent GDP rise that year, but the Commission forecast 1.8 per cent.
It noted Germany had included a forecast for its deficit of about three per cent of GDP in 2005 and the Commission said it believed this scenario was more realistic.
The second risk is posed by government spending overruns due to the cost of funding pensions, the health sector and unemployment benefits, the Commission said.
The German Finance Ministry reacted to the Commission comments by saying that it would be hard, but possible, to meet the 2005 goal.
The Commission recently issued a harsh judgment on France, saying it could break the three per cent of GDP limit in every year up to 2007 after first topping it in 2003.
The Commission said Spain and Belgium were expected to have either balanced budgets or small surpluses in the years to come, well within the rules of the Stability Pact and noted that the two countries' forecasts were realistic.
However, it signalled worries for both countries from the impact of ageing populations in the future and urged a major reform of the Spanish public pension system. For Belgium, it said one-off operations introduced a risk of uncertainty in 2003 and 2004.
Portugal has in the past gone over the EU's budget deficit limits. The Commission said it would keep an eye on the country's efforts to get back under three per cent for 2003.
It also said there were a number of risks for Lisbon's plans to reduce its deficit to 1.1 per cent of GDP by 2007, including the outlook for tax revenues.