Germany's public sector deficit reached €42.7 billion in the first half of the year, a record 4 per cent of gross domestic product.

But the government said it still aimed to bring the financing shortfall back within the limits set by the European Union's fiscal rules.

Berlin said last year that it would breach the EU's stability and growth pact in 2004 for the fourth successive year, but pledged to bring the deficit below the 3 per cent threshold in 2005.

Yet given the decision by Mr Hans Eichel, finance minister, to shy away from drastic spending cuts in the 2005 budget unveiled just before the summer, most economists see the government's deficit goal as ambitious.

The ministry said the figure released yesterday should not be extrapolated to the full year, pointing at the impact of accelerating growth on tax revenue.

Yesterday's deficit compared with an equivalent shortfall in the same period last year of 3.6 per cent of GDP.