Mr Hans Eichel, the German finance minister, has warned that unemployment would continue to "rise significantly" in the coming months to well over four million, or 10 per cent, putting further pressure on the state's already overstretched coffers.
Mr Eichel was speaking during a rancorous parliamentary debate yesterday as the country's worst economic crisis in 20 years begins to bite. The worsening economic situation in Germany will add to pressure for the governing council of the European Central Bank (ECB) to cut interest rates when it meets tomorrow.
New budgets for 2002 and 2003 presented yesterday show borrowing will increase by 64 per cent to €34.6 billion this year and by one-fifth next year to €18.9 billion.
The government forecasts that the budget deficit will rise to 3.7 per cent of gross domestic product (GDP) this year, a clear breach of the 3 per cent ceiling set down in the Growth and Stability Pact.
Brussels officials have already begun disciplinary procedures against Berlin. Mr Eichel reiterated yesterday his intention to bring borrowing below 3 per cent of GDP next year and to present a balanced budget by 2006.
He also made a veiled plea to the ECB to act tomorrow.
"Staying on this course is the decisive condition for meeting our obligation in the context of the European Stability and Growth Pact and the single currency, and for giving the ECB the chance to contribute to growth through monetary policy," he said.
The opposition demanded Mr Eichel's resignation, accusing him of "trickery, swindling and deception" for announcing the hole in the public finances days after September's general election.
Mr Friedrich Merz, the Christian Democrats' deputy parliamentary speaker, said that a new parliamentary investigative committee would find out the truth about what Mr Eichel knew about the economy before the election.
Mr Eichel countered that he was "looking forward" to the investigation and accused the opposition of conducting a "rabble-rousing" campaign that was "discrediting the entire political establishment".
He said that the federal states were more responsible for the hole in the budget than Berlin. He asked the states to vote for the tax measures when it goes before them next month in the upper house, the Bundesrat, which is controlled by the opposition Christian Democrats or CDU.
Yesterday's cuts were just the beginning of the belt-tightening.
The government has proposed a controversial €46 billion tax-rise package for the next three years.
The package restricts many benefits for companies and individuals, raising €5 billion next year and progressively more in the ensuing three years.
