European Commissioner for Economic and Monetary Affairs Joaquin Almunia announced the good news ahead of a meeting of EU finance ministers in Luxembourg. He said that sanctions were officially no longer on the table since Germany's deficit for 2006 should fall well within the 3 percent euro zone limit.

The announcement ends Germany's embarrassing five-year struggle with the spending guideline. Throughout the 1990s, as a precondition for the adoption of a single European currency, Germany insisted on a cap for state debt to ensure fiscal discipline among member states. But due to soaring government costs and dwindling state revenues, Germany missed that mark in 2002 and has failed to meet it ever since.

That will change this year -- thanks in part to increased consumer spending within Germany and cutbacks in the country's generous social welfare programs. Almunia's announcement confirms an unofficial agreement among EU finance members in early September to drop disciplinary proceedings against Berlin.

Almunia also said that Greece and France -- two other EU "debt sinners" -- should also reduce their deficits below 3 percent in 2006, and that Italy was on course to follow suit in 2007.

Germany's improved budget figures come amidst what's being seen as a slight recovery in the German economy. But critics warn that hikes in value-added tax planned for 2007 could dampen consumer spending and stifle the incipient economic comeback.