Nov. 10 (Bloomberg) -- German Finance Minister Wolfgang Schaeuble said Europe’s biggest economy may cut its budget deficit to the European Union limit by 2013, while France is asking for an extra year.

“We will accept the targets laid down in the deficit procedure and bring our general deficit back below 3 percent” of gross domestic product in 2013, Schaeuble told reporters today in Brussels after meeting with his EU counterparts for the first time. “We assume that the commission will publish such a recommendation tomorrow.”

French Finance Minister Christine Lagarde, leaving the two- day meeting, said “it will be very difficult” for France to cut its deficit to 3 percent of GDP and meeting the goal in 2014 “will already be a nice effort.” Making unrealistic commitments “hits the credibility” of the EU rules, she said.

EU finance ministers have committed to withdrawing economic stimulus after 2010 and to start reining in deficits that have swelled because of the recession. Germany’s budget shortfall will peak at 5 percent of GDP next year, and France’s deficit at 8.3 percent this year, the commission forecast on Nov. 3.

“Public finances are on an unsustainable course,” Swedish Finance Minister Anders Borg, whose government holds the EU’s rotating presidency, said yesterday. The average deficit in the euro region will reach a record 6.9 percent of GDP next year with all 16 euro nations breaching the EU limit, the European Commission forecasts.

Tax Cuts

Chancellor Angela Merkel’s new government plans to observe the commission call to start cutting the budget deficit. Yet this is made harder by Merkel’s coalition pledge to grant tax relief to voters. Bowing to pressure from the pro-business Free Democratic Party, she agreed to cut 24 billion euros ($36 billion) in taxes and simplify the tax system.

Schaeuble said “a strict budget policy” will enable Germany to grant tax relief and reduce the deficit during the government’s four-year term. The budget for 2010 aims to lay the foundations for “growth and sustainability,” he said.

Merkel’s Cabinet yesterday approved tax cuts for 2010 worth 6 billion euros. The measures, including expanded children’s benefits, are supplementary to about 10 billion euros in tax reductions taking effect on Jan. 1 that were approved in June by Merkel’s previous coalition.

Cabinet Decision

The Cabinet decision still needs the approval of Germany’s 16 federal states, some of which have complained about revenue loss. Bavarian Prime Minister Horst Seehofer, leader of the smallest of the three coalition parties, said the government should wait for a May tax-revenue estimate before deciding to cut taxes further, the Financial Times Deutschland newspaper reported yesterday.

“For this government, the Stability and Growth Pact is not up for discussion and we will do everything to make sure it stays strong,” Schaeuble said when asked to comment on France’s plea for more time. “It’s true that German-French cooperation in Europe isn’t everything. But it’s also true that many things in Europe would be even more difficult without close German- French cooperation.”

The commission, the Brussels-based EU executive, will issue reports tomorrow assessing efforts by France, Spain, Ireland, Greece and the U.K., which isn’t in the euro area, to start to bring their deficits back into line with EU rules. Germany and eight other countries will be given deadlines to correct their deficit overruns.

Budget-Cutting Efforts

Overall government debt for the 27 nations in the EU will reach 79 percent of GDP in 2010 and more than 83 percent the following year, the commission forecast last month. Without budget-cutting efforts, the debt-to-GDP ratio “could reach 100 percent as early as 2014 and keep on increasing,” according to a commission document discussed by finance ministers.

The euro-area economy will contract 4 percent this year before expanding 0.7 percent in 2010, according to the forecasts by the commission. European Central Bank President Jean-Claude Trichet said yesterday that while the recovery is taking hold a little faster than expected, risks to growth mean there is “no time for complacency.”

To contact the reporter on this story: Rainer Buergin in Brussels at rbuergin1@bloomberg.net. Francois de Beaupuy in Brussels at fdebeaupuy@bloomberg.net

Last Updated: November 10, 2009 09:35 EST