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For the first time, German finance minister Hans Eichel admitted yesterday (23 October) that his country would break the EU's economic rules for a third year in a row.

The EU's stability and growth pact forbids euro zone countries - the twelve countries that share the euro - to have a budget deficit of more than three percent of GDP.

But Mr Eichel admitted yesterday that Germany's deficit next year would be more like 4.3 percent of GDP. Germany also broke the rules in 2002 and 2003.

This now places Germany in the same position as France, which will also break the Stability Pact ceiling for three years in a row.

Germany's deficit - its tax receipts minus its public spending - is expected to reach 43.4 billion euro this year, the highest level in post-war history.

Berlin's coffers have been hit hard by a combination of economic stagnation - which reduces tax receipts - and high unemployment - which means the government has to increase spending on unemployment benefit.

If the deficit does reach 4.3 percent of GDP, it would be the highest level ever reached by a euro zone country since the euro was launched.

Predictably, German opposition politicians were outraged by the latest figures. Liberal leader Guido Westerwelle said that Germany was "ruined in terms of financial policy" and called for new elections. Mr Eichel rebuffed all calls for his resignation.

More bad news for Germany

Mr Eichel's day was not improved by new government growth projections showing that German growth would be 0 percent this year.

The government was previously working on the basis of 0.75 percent growth. If the new projections of economic stagnation are correct, it will make Mr Eichel's job of reducing the deficit even harder.

Privatisations on the way

Germany plans to solve this problem by selling part of its stake in nationalised companies such as Deutsche Telekom and Deutsche Post.

Some German media report that Mr Eichel is planning an income tax hike, but the Finance Ministry emphatically denied this.

Commission likely to be lenient

In theory, Germany's budgetary position could lead to fines of billions of euro from the European Commission.

But Brussels is likely to be lenient towards the euro zone's largest economy.

Earlier in the week, Economics and Monetary Affairs Commissioner Pedro Solbes said he was giving France an extra year to comply with the Stability and Growth Pact and he is almost certain to make the same allowance for Germany.

A spokesman for Mr Solbes said yesterday that all countries would be treated equally but added, "we have a situation in which we have to analyse the figures coming out of Germany. We have to wait".

However, even if Brussels does grant an extra year, it will be very difficult for Germany to make the necessary cuts.