BERLIN, Nov 22: The European Commission may water down demands that Germany reduce its structural budget deficit by 0.8 per cent of gross domestic product next year, according to a German newspaper report on Saturday.

The Sueddeutsche Zeitung report follows efforts by EU president Italy on Friday to defuse a blazing row over excessive budget deficits in Germany and France, as well as signals from Finance Minister Hans Eichel that compromise is still possible.

It also comes days before Germany is reportedly going to announce to the Commission its total budget deficit will be four per cent of GDP in 2003 and 3.5 per cent in 2004 before slipping to 2.5 per cent in 2005, according to Der Spiegel magazine.

That would be three consecutive years above the EU Stability Pact’s three per cent limit. A spokesman for the Finance Ministry declined comment. He said deficit forecasts would be published in December after the data is sent to the European Commission.

Even though Germany and the Commission stuck to their guns in the bust up over repeated breaches of EU budget rules by Berlin and Paris, signals emerged on Saturday that a compromise would be reached.

An EU Commission source was quoted in the Sueddeutsche Zeitung saying Economic Affairs Commissioner Pedro Solbes’ order that Germany cut its underlying deficit by what would amount to about five billion euros “are not the final word”.

Germany has said the Commission move was unjustified given past attempts to comply with EU policy recommendations.

Eichel says he could trim the budget during a boom, but a restrictive policy now could strangle the fragile recovery.

Yet Eichel said in an interview in Die Welt daily he believes a compromise is possible even though he repeated his criticism of the Commission’s additional savings demand as wrong because that will endanger the economic upturn.

“The condition for a compromise is that everyone moves from their position,” Eichel said ahead of an EU finance ministers meeting on Tuesday to discuss and possibly vote on the Commission’s recommendation.

“I’m in favour of tightening the screws on budget consolidation as soon as the economy is growing strongly again,” he said. Asked if that would be the case by 2005, Eichel said: “So quickly as possible once the economic growth is stable.”

Eichel has already said the 2003 deficit will be above the 3.8 per cent level predicted earlier and could possibly be above four per cent.

He has also said that Germany would also not meet the three per cent deficit target in 2004.—Reuters