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Missing billions blow Germany's EMU target off course

Germany is 40bn deutschmarks short of achieving the goals laid down by the Maastricht Treaty for European Monetary Union. In their half- yearly report, experts estimating the government's tax revenue yesterday uncovered a hole that is DM17.3bn deep this year, and they said another DM22.4bn would go missing next year.

The shortfall is the result of slower than expected economic growth in the first half of the year, and, consequently, larger than projected state spending on the growing number of unemployed. Nearly half-a-million more Germans are out of work now than this time last year.

The new hole, which was predicted by opposition parties months ago, comes as a severe embarrassment to the government and especially to Theo Waigel, the finance minister. He has staked his political future on the pledge that Germany will fulfil to the last decimal point the Maastricht deficit criteria.

With no chance of fulfilling the requirements on total public debt, the government is committed to keeping the budget deficit under 3 per cent of GDP. Having placed the budget on course for a "point landing", Mr Waigel urgently needs to find the missing money.

"Despite expected tax revenue shortfalls, it will be possible to hold to the Maastricht Treaty's 3 per cent criterion," Mr Waigel declared yesterday. That has been the mantra all year, amid deteriorating economic conditions.

Although decimal points are largely academic, the three-point-nought goal has become a totem of commitment to a hard euro; a symbol of Germany's determination to allow no slacking off.

Yesterday's estimates come in the wake of a series of crises over the budget, each of which threatens the survival of Chancellor Helmut Kohl's government and the prospects of the euro.

Six months ago, when the same experts uncovered the first of the budget holes, Mr Waigel was forced to fly cap in hand to the gnomes of Frankfurt.

His scheme to convert the Bundesbank's hoard of gold into government assets was defeated by the bankers, and Mr Waigel had to sell off shares of some publicly-owned companies instead.

In spite of the setback, the finance minister has not yet renounced alchemy. "Interest-swaps", the withholding of debt repayments and other financial trickery are likely to feature in his arsenal in the last two months of the year. Such measures, coupled with yet more cuts in public spending, should ensure that, come 31 December, the books will show the numbers that everybody in Europe wants to see.