Recession-hit Germany faces £90bn shortfall
By Malcolm Moore (Filed: 16/05/2003)
The German economy was hit by two more heavy blows yesterday, with data showing that it had officially fallen into recession for the second time in two years swiftly followed by the revelation of a Eu126 billion (£90 billion) tax shortfall over the next four years.
Hans Eichel: 'We are still living beyond our means'
The bad news from Germany was echoed around the euro zone, with data showing that economic growth in the European Union has ground to a halt. Germany's gross domestic product surprised economists by shrinking 0.2pc.
In the Netherlands, GDP shrank 0.3pc, and in Italy by 0.1pc. France, on the other hand, is expected to grow 0.3pc, according to the French statistics office.
The German and Dutch economies are now both in recession, with GDP having fallen for two consecutive quarters. The news piled more pressure on the European Central Bank for a cut in interest rates to stimulate growth.
Economists were particularly surprised by the news from Germany, with Robert Prior-Wandesforde at HSBC saying that as recently as last week, the German government had briefed economists on a 0.25pc rise in GDP.
Hans Eichel, the German finance minister said he was as surprised as anyone at the fall. He played down the fear of recession though, saying: "It is, by definition, not correct that Germany entered recession."
Mr Eichel now faces an uphill struggle to return the country to the confines of the EU stability and growth pact, which it looks almost certain to breach next year as well.
He said more cuts would be needed to get public spending under control. "We are still living beyond our means," he said. For this year, tax revenues are estimated to fall short by Eu8.7 billion. He has also warned that the German budget deficit is likely to exceed Eu30 billion, far above the current predictions of Eu18.9 billion.
Meanwhile Horst Koehler, the managing director of the International Monetary Fund, said Germany could still reach 0.5pc growth in 2003 despite the latest data. "The IMF has forecast 0.5pc. There's still a chance that will be achieved. I think it's wrong to make new forecasts every 14 days," Koehler said.
He added that the European Central Bank had room to cut interest rates. "I think the room for manoeuvre is there," he said.
By Malcolm Moore (Filed: 16/05/2003)
The German economy was hit by two more heavy blows yesterday, with data showing that it had officially fallen into recession for the second time in two years swiftly followed by the revelation of a Eu126 billion (£90 billion) tax shortfall over the next four years.
Hans Eichel: 'We are still living beyond our means'
The bad news from Germany was echoed around the euro zone, with data showing that economic growth in the European Union has ground to a halt. Germany's gross domestic product surprised economists by shrinking 0.2pc.
In the Netherlands, GDP shrank 0.3pc, and in Italy by 0.1pc. France, on the other hand, is expected to grow 0.3pc, according to the French statistics office.
The German and Dutch economies are now both in recession, with GDP having fallen for two consecutive quarters. The news piled more pressure on the European Central Bank for a cut in interest rates to stimulate growth.
Economists were particularly surprised by the news from Germany, with Robert Prior-Wandesforde at HSBC saying that as recently as last week, the German government had briefed economists on a 0.25pc rise in GDP.
Hans Eichel, the German finance minister said he was as surprised as anyone at the fall. He played down the fear of recession though, saying: "It is, by definition, not correct that Germany entered recession."
Mr Eichel now faces an uphill struggle to return the country to the confines of the EU stability and growth pact, which it looks almost certain to breach next year as well.
He said more cuts would be needed to get public spending under control. "We are still living beyond our means," he said. For this year, tax revenues are estimated to fall short by Eu8.7 billion. He has also warned that the German budget deficit is likely to exceed Eu30 billion, far above the current predictions of Eu18.9 billion.
Meanwhile Horst Koehler, the managing director of the International Monetary Fund, said Germany could still reach 0.5pc growth in 2003 despite the latest data. "The IMF has forecast 0.5pc. There's still a chance that will be achieved. I think it's wrong to make new forecasts every 14 days," Koehler said.
He added that the European Central Bank had room to cut interest rates. "I think the room for manoeuvre is there," he said.
