Germany likely to escape EU budget reprimand

Germany looks likely to escape a humiliating reprimand from its European partners over its high budget deficit.

Diplomats who are seeking frantically to agree a compromise ahead of an important meeting next Tuesday said yesterday that the European Commission's proposal to issue an "early warning" to Berlin did not have enough support from EU finance ministers.

Without their approval, the formal censure or "yellow card" cannot be issued.

This year, Germany's budget deficit is forecast to rise to 2.7 per cent – within a tiny margin of the 3 per cent ceiling laid down in the euro's rule book, the Stability and Growth Pact.

The dispute is the first real test case for rules governing the euro and, after a fierce political counter-attack by Berlin, officials expect an elaborate diplomatic fudge to be crafted.

Without the required level of support in favour of an official warning to Germany, the Spanish presidency is seeking an agreed text that avoids the need for a vote. One diplomat said: "There would not be a qualified majority for what the Commission is proposing."

Wim Duisenberg, the president of the European Central Bank, hinted that Germany and Portugal – which faces a similar threat – might escape a formal reprimand if they gave firm assurances about future fiscal policies. "We are not talking in terms of a compromise, but if there is a way to extract certain definitive and well-defined commitments from the governments concerned, that might replace the early warning," he said.

The European Commission's president, Romano Prodi, is expected to speak directly to the German Chancellor, Gerhard Schröder over the weekend to try to defuse the issue before Tuesday's meeting.

Officials in Brussels are already alarmed at a series of attacks made by Mr Schröder on Brussels as he gears up for the German election campaign.