Bundesbank Head Says Germany Will Breach Pact

The president of Germany’s central bank, the Bundesbank, said Germany will likely breach the deficit rules set by the European Union next year for the third year in a row. Ernst Welteke told reporters during a trip to Moscow that persistent weakness in the German economy meant the country will not be able to reduce its public deficit below three percent of GDP in 2004. Germany already missed the limit in 2002 and 2003. The three percent rule, part of the EU Stability and Growth Pact, was put in place to protect the euro. The German government hopes to haul the economy out of recession by loosening restrictive labor laws and by pulling a tax cut planned for 2005 forward a year. Chancellor Gerhard Schröder is counting on the economy to grow by 2 percent in 2004 in order to meet the deficit limit. However, many economists do not consider the aim achievable. The EU Commission has warned Germany it faces fiscal sanctions if it breaks the deficit rule for a third time.