(6)

Based on data provided by the Commission (Eurostat) in accordance with Article 8g(1) of Regulation (EC) No 3605/93 following the notification by Germany before 1 April 2007 and on the Commission services’ spring 2007 forecast, the following conclusions are warranted: — the general government deficit, after rising from 3,7 % of GDP in 2002 to 4,0 % of GDP in 2003, was reduced to 3,7 % of GDP in 2004, to 3,2 % of GDP in 2005, and finally to 1,7 % of GDP in 2006. This is lower than the target of 3,3 % of GDP set in the February 2006 update of the stability programme and well below the 3 % of GDP deficit reference value one year before the time limit set by the Council, — in previous years of favourable cyclical conditions, Germany had not created enough budgetary leeway to accommodate the extended slow growth period between 2002 and 2005 with average real GDP growth at 0,5 % per year. A series of tax cuts, carried out until 2005, burdened the budget further, while offsetting measures on the expenditure side were implemented only with some delay. Consolidation measures included restraint in public sector wages, accompanied by a reduction in staff levels, the reform of the public health system in 2004, a reduction of subsidies and public investment, but also the fact that low wage growth in the private sector dampened pension outlays. Furthermore, in 2006, direct taxes, especially those related to profits, yielded stronger revenues than economic developments would have suggested. The cyclically-adjusted balance improved from 2002 onwards, without recourse to significant one-off measures. Particularly in 2006, the estimated structural balance, excluding one-off and other temporary measures, as a percentage of GDP improved by close to one percentage point, — for 2007, the Commission services’ spring 2007 forecast projects that the deficit will be reduced further to 0,6 % of GDP, driven by continuing high GDP growth and, in particular, the increase in the standard VAT rate from 16 % to 19 % as of January 2007. No one-offs are envisaged. In the spring 2007 notification, the German authorities estimated the 2007 deficit at 1,2 % of GDP. Moreover, the Commission services project an improvement in the structural balance as a percentage of GDP amounting to percentage point in 2007. Thus, Germany appears to comply with the recommended improvement in the structural balance of at least one percentage point in 2006 and 2007 in cumulative terms. For 2008, the spring forecast projects, with unchanged policies, a further decline in the deficit to 0,3 % of GDP. This indicates that the deficit has been brought below the 3 % of GDP ceiling in a credible and sustainable manner. With unchanged policies, the structural deficit is expected to decline only marginally in 2008. This should be seen against the need to make progress towards the medium-term objective for the budgetary position, which for Germany is a balanced budget in structural terms, — after rising from 60,3 % of GDP in 2002 to a peak of 67,9 % of GDP in 2005, the debt ratio stabilised in 2006 and is projected to decline to 65,4 % of GDP in 2007 and to about 63 % by 2008 on a no-policy change basis according to the Commission services’ spring 2007 forecast, thus coming closer to the reference value more rapidly than projected in the most recent update of the stability programme.