March 30, 2003	Sunday	Muharram 26, 1424

BERLIN, March 29: Germany is preparing to raise its borrowing this year as the outlook for Europe’s largest economy dims, Spiegel magazine said on Saturday in a report the finance ministry described as groundless speculation.

According to the magazine, government experts believe the country’s budget deficit could swell to more than 4.0 per cent of gross domestic product compared with a 2.8 per cent goal.

Spiegel said finance ministry experts had identified a 10 billion euros ($10.75 billion) hole in public finances and Finance Minister Hans Eichel would be forced to present a supplementary budget at the latest in May once new tax revenue estimates are drawn up.

In reaction to the report, a finance ministry spokesman told Reuters there were no grounds yet to speculate about a supplementary budget.

Eichel has consistently said Germany’s 2003 budget goals, including reducing the country’s deficit to below the EU’s three per cent of gross domestic product limit from the 3.6 per cent reached in 2002, assume the economy will grow one per cent.

They also assume unemployment will average around 4.2 million and that the government will eventually win approval for a number of tax increases that have been blocked by the Bundesrat upper house of parliament.

Unemployment hit a five-year high of over 4.7 million in February and, according to reports on Friday, data next week will show unemployment in March was 4.66 million, a post-war record for the month.

Spiegel said the government had already been forced to give the Federal Labour Office 3.5 billion euros in short-term liquidity to meet unemployment payments despite the fact the budget foresees no federal subsidy for the office this year.

Spiegel reported the European Commission and International Monetary Fund would next month join other think-tanks in slashing their growth forecasts for Germany. Both organizations see Germany growing just 0.4 per cent this year, it said.

The International Monetary Fund forecast last September Germany’s economy would grow 2.0 per cent this year, while the Commission had forecast in November growth of 1.4 per cent.

The chief economist of Germany’s central bank, the Bundesbank, told Reuters on Friday it expected growth this year of around half a per cent.

Eichel conceded for the first time last week that getting under the three per cent ceiling may be difficult this year.

During the final debate on the 2003 budget in parliament on March 20, Eichel said the government would review its figures in May during the twice-annual tax revenue estimate exercise.—Reuters