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Germany’s 1997 deficit seen too high for euro, budget wrangle continues

July 2, 1997

BERLIN (AP) _ Germany will miss the deficit target for entry into the European single currency this year, a leading economic research institute said Wednesday.

Still, there are no reasons for postponing the start of the euro currency, set for Jan. 1, 1999, said the German Institute for Economic Research, known as DIW.

Criteria established by the European Union’s 1992 Maastricht Treaty require that countries’ ratio of deficit ratio to gross domestic product be 3.0 percent for 1997, or approaching that.

German politicians, including Chancellor Helmut Kohl and Finance Minister Theo Waigel, have said Germany will meet the 3.0 percent target. However, with unemployment at 11.1 percent and tax income down, the government may not attain that goal.

DIW predicted Germany will have a 3.4 percent deficit ratio this year and 3.0 percent in 1998.

DIW cautioned against sticking strictly to the 3.0 percent, saying it could damage the strength of the euro.

``If 3.0 percent is achieved through accounting tricks, this could endanger the stability of the euro more than a value of 3.3 percent without such tricks,″ the DIW report said.

In the government’s battle to get the 1997 budget in line with Maastricht, a leading Kohl ally said Wednesday the government is considering declaring an ``economic imbalance″ so the government can take up debt to help fill budget gaps.

Wolfgang Schaeuble, leader of Kohl’s Christian Democratic Union in parliament, said on ZDF television that the step might be necessary in connection with a supplementary budget for 1997 that the government expects to present next week.

The move would allow Kohl to get around a constitutional provision that the deficit must not exceed government investment in any year and blunt a threatened legal challenge against the 1997 budget by the opposition Social Democrats.

Finance Minister Theo Waigel said Wednesday the government may suspend interest payments on some of its debt in the 1998 budget as a way to save money.

However, ministry spokeswoman Barbara Eckrich said government bonds would not be affected.

Keeping up the pressure on Waigel, the Social Democrats on Wednesday unveiled a legal challenge to last year’s budget, claiming it was unconstitutional because the deficit exceeded investment at the end of the year.

The government has rejected the charge, saying the budget was constitutional when it was passed by parliament but that high unemployment led to an unexpected shortfall.

Ingrid Matthaeus-Maier, the Social Democrats’ finance expert, said Germany’s federal finances were ``in a state of chaos.″

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