EU to Call on Germany to Fix Deficit by 2007

The ministers are set to endorse a recommendation from the European Commission to step up so-called excessive deficit procedures against Berlin, the official said.

The commission, which polices public finances in the EU, advised the ministers last month to call on Germany to come up with a credible belt-tightening plan by July that would bring down the deficit to within three percent of output by 2007.

The government is to officially unveil its 2007 budget in July.

In theory, Berlin could face huge fines if it fails to rein in its deficit although that would be unlikely if the government sticks to its promises to improve the public accounts.

Years of ruling breaking

Germany, which has had a deficit of more than three percent since 2002, reported a shortfall of 3.3 percent for 2005.

Along with France, Germany convinced its EU partners to freeze excessive deficit procedures against them last year after a long struggle with Brussels that resulted in the EU's public finance rules being rewritten,

The ministers are also due to take stock of Rome's commitment to bring down its deficit by next year as it has promised to do.

The Italian government, which faces legislative elections next month, estimates its deficit came to 4.3 percent last year and is aiming to bring it down to 3.4 percent this year. Rome then intends to cut the deficit to less than three percent next year.

Interest rates

The ministerial meeting is to be preceded by a gathering on Monday evening of finance ministers from the 12 euro-zone countries, where the European Central Bank's (ECB) interest rate policy is set to be discussed.

"The question of interest rates will of course come up at the euro group as part of the regular economic discussion," an official with the EU's Austrian presidency said.

The ECB raised its benchmark interest rate to 2.50 percent from 2.25 percent on March 2, with President Jean-Claude Trichet (photo) saying the Frankfurt-based central bank would take whatever steps are needed to control inflation in future.

Some ministers have publicly urged the ECB not to raise rates at a time when a recovery in the euro-zone economy is gradually gathering steam.

OECD chief economist Jean-Philippe Cotis has said the ECB should only raise rates again once there are "unambiguous signs that slack is shrinking and that underlying inflation pressures are mounting."