Germany, Short on Cash?

Germany will have to make do with less money this year.

That is the conclusion contained in an internal report by the country’s Finance Ministry, which predicts a serious shortfall in tax revenues.

Last November, a committee of tax and finance experts estimated how much Germany would collect in taxes in 2002. The prognosis was too optimistic.

The Finance Ministry report said revenues would likely be at least €4.6 billion lower than estimated six months ago.

Back then, experts had predicted Germany’s economy would grow by 1.25 percent in 2002. But Germany’s economy has not performed at that rate and economists have since lowered growth forecasts to 0.75 percent.

Exacerbating the situation are the country’s four million unemployed who aren’t contributing payroll taxes to the system.

No Problem

Finance Minister Hans Eichel put on an optimistic face during an interview on Germany’s ZDF television network on Tuesday morning.

He blamed the overall weakness of the economy for the lower projections, and said his ministry could weather this latest bit of economic bad news with a strategy of strict fiscal discipline.

"I’ve always kept a handle on the economy," he said in the interview.

He and his boss Chancellor Gerhard Schröder (photo) are putting their hopes in an upswing in the German economy that some economic indicators have been pointing to for the second part of this year and 2003.

But that might be a case of putting all your eggs in one basket, and that basket toppling over.

Slower Recovery than Expected

New data out on Tuesday suggest that economists are rethinking the speed of the German economic recovery.

The German Chambers of Commerce are no longer counting on a strong economic comeback in 2002, saying while the world’s economy is improving, it is doing so only haltingly. And since nearly one in two German jobs depends on exports, Germany’s economy is closely tied to the world situation.

A new poll by the Mannheim-based Center for European Economic Research shows that economists and institutional investors are no longer as confident as they once were that Germany will spring back to economic health this year.

That could be disastrous for Schröder and Eichel.

The economy is expected to play a decisive role in general elections this September. If the economy does not bounce back fast enough to give Schröder a spring in the polls, he and his current finance minister will have other things than tax shortfalls on their minds. More likely they will be busy sending out résumés.