Germany: Bundesbank Monthly Report: The development of public finances in Germany following qualification for European monetary union

The current situation of public finances in Germany is extremely tense. The deficit ceiling of 3% of GDP as set by the Maastricht Treaty was clearly overshot in 2002. The extremely sharp rise in the deficit over the past two years brought about by the macroeconomic slowdown and the tax relief measures which entered into effect in 2001 were the main reasons. Although the deficits had declined continuously in the three preceding years, this seemingly welcome development was based on favourable cyclical influences and the extraordinarily positive tax revenue during that period. Without these effects, the deficits would have risen