A German government source said today that Finance Minister Mr Hans Eichel would tell the European Commission he expected a 2003 budget deficit of 3.8 per cent of gross domestic product (GDP).
This followed an earlier report in Spiegel Online that Mr Eichel would tell the EU executive it would again break the EU's deficit limit of three per cent of GDP. A finance ministry spokesman earlier said the report was "speculation".
Germany exceeded the deficit limit set in the EU's Stability and Growth Pact in 2002. If it breaks it again in 2003 it will face no sanctions but a breach in 2004 could possibly lead to Germany being ordered to pay a financial penalty.
The German government is proposing additional tax cuts of €15.5 billion next year to stimulate the German economy which has been in stagnation for over two years but only to partially cover the loss in revenue.
Earlier, a draft report by the International Monetary Fund showed that the IMF expected Germany's budget deficit to reach 3.9 per cent of GDP in both 2003 and 2004. The weakness of the German economy has pushed up welfare spending and drained tax revenues and forced Germany last year to abandon a goal to bring its total public sector deficit into balance by 2004.
Mr Eichel has been cautious about predicting when Germany could balance its budget, although says he remains committed to that goal.
Mr Eichel earlier this year also abandoned a separate goal to balance the federal budget by 2006.The government's latest medium-term budgetary projections forecast a federal budget deficit of 10 billion euros in 2007.
EU governments must present to the European Commission details of how their budgets are developing twice a year, by March 1st and September 1st.