The German government yesterday won parliamentary approval for its 2003 budget, in spite of unusual uncertainty about the underlying financial assumptions because of domestic political obstacles and the conflict in Iraq.

Leading economists warned that a prolonged war with Iraq and the risk of significantly higher oil prices would upset forecasts about tax revenues and economic growth, undermining the basis of this year's figures.

But even without the imponderables of Iraq, the budget, delayed by last September's general elections, has appeared vulnerable because of strained domestic political circumstances.

The opposition Christian Democrats (CDU) has used its majority in the Bundesrat, the upper parliamentary chamber where Germany's states are represented, to reject the €3.5 billion in tax rises, which are a key component of this year's package.

The CDU also appears lukewarm about the government's planned tax amnesty, optimistically forecast to bring in €5 billion this year.

Further distortions to this year's budget have come from Chancellor Gerhard Schröder's promise to extend extra aid to struggling local authorities, along with subsidised loans to local government and the construction industry.

Such factors have cast doubt on the government's ability to hold this year's budget deficit to 2.85 per cent of gross domestic product as forecast and prevent a breach for the second year running of the 3 per cent ceiling set in the rules for the euro.