14 Stability and Convergence Programmes
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(24214)
5317/03
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(b)
(24215)
5318/03
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(c)
(24216)
5319/03
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(d)
(24217)
5320/03
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(e)
(24218)
5322/03
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(f)
(24219)
5324/03
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(g)
(24220)
5518/03
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(h)
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5519/03
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(i)
(24222)
5524/03
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(j)
(24308)
6437/03
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(k)
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6438/03
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(l)
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6439/03
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(m)
(24311)
6440/03
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(n)
(24339)
6441/03
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(o)
(24438)
7100/03
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(p)
(24439)
7099/03
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Council Opinion on the updated stability programme of Germany.
Council Opinion on the updated stability programme of Greece.
Council Opinion on the updated stability programme of France.
Council Opinion on the updated stability programme of Italy.
Council Opinion on the updated convergence programme of Sweden.
Council Opinion on the updated stability programme of Finland.
Council Decision on the existence of an excessive deficit in Germany.
Council Recommendation to Germany with a view to bringing an end to the situation of an excessive government deficit.
Council Recommendation with a view to giving early warning to France in order to prevent the occurrence of an excessive deficit
Council Opinion on the updated stability programme of Belgium.
Council Opinion on the updated convergence programme of Denmark.
Council Opinion on the updated stability programme of Spain.
Council Opinion on the updated stability programme of Ireland.
Council Opinion on the updated convergence programme of the United Kingdom.
Council Opinion on the updated stability programme of Portugal.
Council Opinion on the updated stability programme of Luxembourg.
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| Legal base | (a)-(f), (i)-(p) Article 99(4) EC; qualified majority voting
(g) Article 104(6) EC; qualified majority voting
(h) Article 104(7) EC; qualified majority voting by all except the Member State concerned
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| Document originated | (a)-(i) 21 January 2003
(j)-(n) 18 February 2003
(o) and (p) 7 March 2003
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| Deposited in Parliament | (a)-(i) 25 January 2003
(j)-(m) 3 March 2003
(n) 10 March 2003
(o) and (p) 16 April 2003
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| Department | HM Treasury
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| Basis of consideration | (a)-(i) EM of 6 February 2003
(j)-(n) EM of 13 March 2003
(o) and (p) EM of 1 May 2003
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| Previous Committee Report | None
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| To be discussed in Council | Already adopted
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| Committee's assessment | Politically important
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| Committee's decision | Cleared, but relevant to the debate recommended on the Broad Economic Policy Guidelines 2003[35]
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Background
14.1 The Council of Economic and Finance Ministers (ECOFIN) issues
an Opinion on the stability and convergence programme (SCP) of
each Member State.[36]
These Opinions, which are not binding on Member States, are based
on a recommendation from the Commission. The economic content
of the programmes is assessed with reference to the Commission's
Autumn 2002 economic forecasts. If a Member State's programme
is found wanting, it may be invited by ECOFIN, in a Recommendation,
to make adjustments to its economic policies, though such Recommendations
are likewise not binding on Member States.
The documents
14.2 The documents provide the Council's Opinion on the SCP of
each of the Member States and the Council's Decision and Recommendation
on the budgetary situation in Germany and its Recommendation on
the budgetary situation in France . A summary of the Council's
comments for each Member State is provided by the Financial Secretary
to the Treasury (Ruth Kelly) in several helpful Explanatory Memoranda,
as follows:
Belgium — Council Opinion on the updated Stability Programme,
2003-2005.
"The Council Opinion notes that the general government accounts
reached balance in 2002, but the debt ratio was still at a high
level, 106.1 percent of GDP. The Opinion also notes with satisfaction
that Belgium meets the requirement of a budgetary position of
close to balance or in surplus in the medium term. However, the
Opinion considers that the plans in the updated programme represent
the minimum effort required in order to rapidly reduce the still
very high debt ratio and to prepare for the budgetary implications
of population ageing. The Opinion recommends that the Belgian
authorities seek every opportunity to realise further budgetary
adjustment in 2003 and in subsequent years. It also considers
that measures to raise employment rates, especially amongst older
workers, are necessary to ensure the sustainability of public
finances."
Denmark — Council Opinion on the updated Convergence
Programme, 2002-2010.
"The Council Opinion notes with satisfaction that public
finances in Denmark continue to remain healthy. For 2002 to 2010
the programme update forecasts budget surpluses and a declining
debt ratio. The Opinion therefore confirms that Denmark will continue
to comply fully with the requirements of the Stability and Growth
Pact. However, the Opinion notes that achievement of the medium
term finance targets requires further labour market reform and,
therefore, the Danish authorities are encouraged to proceed with
these reforms with determination. The Opinion also notes that
consideration could be given to further reductions in the tax
ratio, within a framework of sound public finances."
Finland — Council Opinion on the updated Stability Programme,
2002-2006.
"The Council Opinion notes that the general government balance
is expected to remain clearly in surplus throughout the Programme
period, and that the general government debt to GDP ratio is expected
to decline virtually every year during the Programme period. The
Finnish government is encouraged to maintain the current high
surpluses over the medium term to allow a continuous decline in
the government gross debt ratio. The Opinion notes that public
finances appear to be on a sustainable footing to meet the budgetary
costs of ageing populations."
France — Council Opinion on the updated Stability Programme,
2002-2006.
"For France, the Council Opinion was adopted with France
abstaining. The Opinion notes that general government finances
deteriorated markedly in 2002, with the deficit estimated to be
2.8% of GDP compared with 1.4% of GDP in 2001. The Opinion also
notes that a large part of the slippage in 2002 is due to a deterioration
in the underlying balance. It considers the macroeconomic assumption
underlying the budget of an increase in real GDP by 2.5% in 2003
is optimistic and that there is a danger for the government deficit
to breach the reference value in 2003. Finally, a risk exists
that the government debt breaches the 60% of GDP reference value
in 2003.
"The Opinion comments that the medium term objective of close
to balance or in surplus would not be reached in the Programme
period. It notes that the budgetary consolidation mainly takes
place from 2004 onwards. It urges the French authorities to seek
an improvement in the underlying budgetary position of at least
0.5% of GDP each year in order to reduce the risk for the general
government deficit to breach the 3% of GDP threshold and to reach
a close to balance position by 2006.
"It concludes that on the basis of current policies, the
risk of unsustainable public finances in light of ageing populations
cannot be excluded. The Opinion welcomes the intentions of the
French authorities to reform pension and health care systems in
light of ageing populations and urges them to proceed rapidly
with these reforms."
France — Council Recommendation with a view to giving
early warning to France in order to prevent the occurrence of
an excessive deficit.
"The Council adopted, with France abstaining, a Recommendation
with a view to giving early warning to France in order to prevent
the occurrence of an excessive deficit. It recommends that: the
French government should take all the appropriate measures in
order to ensure that the general government deficit does not breach
the 3% of GDP threshold in 2003; adopting measures apt to improve
the cyclically-adjusted budgetary position by at least 0.5 percentage
point of GDP would not only reduce the risk for the general government
deficit to breach the 3% of GDP threshold in 2003, but also contribute
to resuming a budgetary consolidation path towards a close to
balance position as from 2003; and continuous adjustment in the
underlying budgetary position by at least 0.5% of GDP per year
should be pursued also in subsequent years in order to achieve
the medium-term budgetary position of close to balance or in surplus
by 2006. The Council decided to make the recommendation public."
Germany — Council Opinion on the updated Stability Programme,
2002-2006.
"The Council Opinion notes that the projected deficit outcome
for 2002 (3¾% of GDP) is clearly higher than projected in
the lower-growth scenario of the December 2001 update (2½
% of GDP). It notes further that the rise in the nominal deficit
from 2001 to 2002 cannot be explained only by the unexpected slowdown
in growth. It also notes that the 1½% growth rate expected
for 2003 appears optimistic and considers that there is a non-negligible
risk that the general government deficit in 2003 may again exceed
the 3% of GDP reference value.
"The Opinion acknowledges the improvement in the underlying
balance by more than 0.5% of GDP per year, with the exception
of 2005, projected in the Stability Programme. It notes that in
underlying terms the government accounts would at least be close
to balance by 2006, although this is two years later than planned
in last year's update of the Stability Programme. It takes note
of the German authorities' intentions to bring the debt level
down below the Treaty's reference value by 2005 but notes that
these intentions are subject to a number of risks. Therefore the
development of the debt ratio remains a source of concern given
the need to ensure the sustainability of public finances. The
Opinion considers it to be indispensable that fiscal consolidation,
in order to prove sustainable, should be underpinned by far-reaching
reforms to raise Germany's very low growth potential. It therefore
reiterates the need for urgent reforms not only in the labour
market, but also in social security and benefit systems in general,
and for a reduction in the regulatory burden of the economy."
Germany — Council Decision on the existence of an excessive
deficit in Germany and Council Recommendation to Germany with
a view to bringing an end to the situation of excessive government
deficit
"The Council adopted a decision that an excessive deficit
exists in Germany. It then adopted the Council Recommendation
to Germany with a view to bringing an end to the situation of
an excessive government deficit. Based on the German Stability
Programme, this recommends: the German government to put an end
to the present excessive deficit situation as rapidly as possible
in accordance with Article 3(4) of Council Regulation (EC) No
1467/97; and the German authorities to implement with resolve
their budgetary plans for 2003 which, on the basis of GDP growth
projections of 1½% in 2003, aim at reducing the general government
deficit in 2003 to 2¾% of GDP.
"It establishes a deadline of 21 May 2003 at the latest for
the German government to take measures that will achieve this.
If some of these measures are not implemented, the German government
should adopt and implement compensatory measures to ensure a reduction
of the government deficit in 2003 as planned. In addition, it
recommends the German authorities to ensure that the rise in the
debt ratio is brought to a halt in 2003 and reversed thereafter.
"The Recommendation notes the commitment of the German authorities
to: implement structural reforms which should vigorously address
the need to raise the growth potential of the German economy;
ensure that the momentum of budgetary consolidation is maintained
throughout the period covered by the December 2002 update of the
Stability Programme, with the exception of 2005 due to the introduction
of tax reforms; reinforce the coordination mechanisms of budgetary
policy in Germany."
Greece — Council Opinion on the updated Stability Programme,
2002-2006.
"The Council Opinion notes that the general government accounts
deteriorated in 2000 and 2001, compared with the estimates of
the 2001 update. This is largely due to the revisions of the government
accounts figures, in order to ensure compliance with ESA national
accounting rules. The Opinion notes that budgetary developments,
in particular the slow reduction of the government debt ratio,
in a period when the Greek economy has been growing at high rates,
is a matter of serious concern. The Opinion urges the Greek authorities
to accompany Greece's new code of fiscal stability by the introduction
of appropriate mechanisms to ensure expenditure control. The Opinion
notes progress on structural reform and encourages the Government
to continue implementation in this area, particularly in the pension
system in order to avoid an unsustainable increase in public spending."
Ireland — Council Opinion on the updated Stability Programme,
2003-2005.
"The Council Opinion observes that the projected budgetary
outcome, of 0.1 percent of GDP, is half a percent worse than planned
in the previous programme and that it is projected to continue
to deteriorate in 2003 and 2004. The Opinion notes that important
considerations bear on the examination of the Irish budgetary
position, first that the underlying deficit is estimated to have
peaked in 2002 and second that, should contingency provisions
not be used, then there would be a significant improvement in
the budgetary position projected in the medium term. The Council
Opinion notes that with its low debt and gradual build up of assets
in the National Pensions Reserve Fund, Ireland seems to be in
a relatively strong position to cope with the budgetary impact
of ageing populations. However, the Opinion notes that there is
a risk of budget imbalances in the long-run on the basis of current
policies. A financing gap may emerge over time if age related
spending as a share of GDP approaches the average level for the
EU and if the tax ratio is left unchanged."
Italy — Council Opinion on the updated Stability Programme,
2002-2006.
"The Council Opinion notes that the projected deficit for
2002 of 2.1% of GDP significantly exceeds the original objectives
and that the decline in the debt ratio has slowed down considerably
since 2001. It notes that growth assumptions, both nominal and
potential, appear to be optimistic. The Opinion observes that
the budgetary target for 2003 relies heavily on one-off measures
and considers that, in order to implement a sustained path of
consolidation, Italy should replace one-off measures with structural
ones on the expenditure side. Italy is urged to act on all factors
under the government's control to ensure that debt is sufficiently
diminishing and invited to clarify their fiscal strategy. It encourages
Italy to continue pension reforms in order to cope with the budgetary
consequences of population ageing."
Spain — Council Opinion on the updated Stability Programme,
2002-2006.
"The Council Opinion notes that implementation of the 2001
stability programme has been broadly successful. Slightly weaker
than expected growth and some primary expenditure overrun both
contributed to a modest deficit of 0.2 percent of GDP and the
debt ratio fell broadly in line with plans. The Council Opinion
notes that Spain continues to be in conformity with the provisions
of the Stability and Growth Pact. It notes that budgetary imbalances
in the long run cannot be excluded, stemming from the large projected
increase in age-related spending on public pensions, and that
strengthening long-term sustainability should remain of primary
concern. The Council Opinion welcomes recent structural reforms
in labour, capital and product markets and recommends further
progress in these areas."
Sweden — Council Opinion on the updated Stability Programme,
2002-2004.
"The Council Opinion notes with satisfaction that the updated
Programme envisages continued government surpluses throughout
the period to 2004 and that the debt ratio remains below the reference
value of 60% of GDP. The Opinion considers that on the basis of
current policies, public finances appear to be on a sustainable
footing to meet the budgetary costs of ageing. However, it is
also noted that the macroeconomic scenario presented in the Programme
appears somewhat optimistic in 2002 and 2003. On potential EMU
entry, it confirms Sweden continues to fulfil the long-term interest
rate convergence criterion, but still does not fulfil the exchange
rate convergence criterion. The Opinion also notes that the Council
expects Sweden to decide to join the ERM2 in due course."
UK — Council Opinion on the updated Convergence Programme,
2003-2005.
"The Council Opinion notes that sound monetary and
fiscal policies, combined with continued structural reform, have
delivered low and stable inflation in recent years. The Opinion
notes that macro-economic forecasts that underpin the public finance
projections are in line with Commission's Autumn 2002 forecasts.
According to the Opinion, the rise in the deficit over the forecast
period is attributed to investment in public services, which is
in line with the 2002 Broad Economic Policy Guidelines. The short-term
rise in the deficit is attributed to cyclical factors. The Opinion
notes with approval that the UK gross debt to GDP ratio remains
relatively low at around 39 per cent over forecast period. The
Opinion recommends that the UK authorities should aim for a medium-term
budgetary position that is in line with the close to balance requirement
of the Stability and Growth Pact. On the long term sustainability
of public finances, the Opinion considers that the UK is well
placed to meet the budgetary costs associated with ageing populations.
It also welcomes the measures of economic reform that are intended
to achieve a higher rate of productivity growth for the UK. The
Opinion was adopted by qualified majority, with Belgium, Denmark
and Spain voting against.
"The Commission also requested a declaration be included
as an annex to the Council Opinion on the UK Convergence Programme
update. This declaration noted that on the basis of the UK's current
policies and low level of debt to GDP, the Commission believes
that the UK could be allowed to have a small deviation from the
balanced budget rules, but that the UK should ensure the 3 per
cent deficit ceiling is not breached in any year."
Portugal — Council Opinion on the updated Stability Programme,
2003-06
"The Council Opinion notes that the updated Programme broadly
complies with the requirements of the revised Code of Conduct.
The Opinion makes reference to the Council Recommendation to Portugal
on its excessive deficit, which included a recommendation that
the Portuguese government take all necessary measures to bring
the excessive deficit to an end by 31 December 2002. The Opinion
notes with satisfaction that, according to preliminary figures,
the general government deficit has been reduced below 3% of GDP
in 2002, in spite of weaker than anticipated growth.
"The Opinion notes that substantial challenges remain in
2003 to achieve the deficit target of 2.4% of GDP. It notes that
two factors appear particularly critical. First, the somewhat
over optimistic growth forecast for 2003 contained in the Stability
Programme. Second, additional measures may be necessary in 2003
as the beneficial impact of the one-off measures implemented in
2002 wears off. The Opinion notes with satisfaction that the consolidation
strategy adopted rests mainly on the restraint of government expenditure.
However, it also notes that, on the basis of current policies,
the risk of unsustainable public finances in the light of ageing
populations cannot be excluded. It notes further that running
sound public finances over the long run will allow Portugal to
achieve a significant reduction in the debt ratio, estimated at
58.8 % of GDP in 2002, prior to the budgetary impact of ageing
populations taking hold."
Luxembourg — Council Opinion on the updated Stability
Programme, 2001-2005.
"The Council Opinion notes the Programme does not fully comply
with the requirements of the Code of Conduct; in particular it
was transmitted with a six week delay. It notes further that government
finances deteriorated markedly in 2002, resulting in an estimated
deficit of 0.3% of GDP, compared to a surplus of 6.1% of GDP in
2001. This arose because revenues decelerated in response to the
combined impact of the tax reform and the economic slowdown, while
expenditure growth remained very strong. However, as the underlying
general government balance is expected to remain positive over
the horizon covered by the Stability Programme, the Opinion considers
that Luxembourg continues to conform to the requirements of the
Stability and Growth pact. The Opinion expresses some concern
over the rapid deterioration of the budget balance of the central
government, which only accounts for part of the general government
sector. But, on the basis of current policies, the Opinion considers
that public finances in Luxembourg are in a good position to meet
the projected costs of an ageing population."
The Government's view
14.3 In her Explanatory Memorandum of 6 February the Minister
tells us:
"The Council adopts Opinions and Recommendations based on
the budgetary plans of national governments as set out in their
updated Stability and Convergence Programmes. The Opinions set
out the Council's views on policy priorities for the coming years
with reference to the Stability and Growth Pact, and growth prospects
in general. The Recommendations focus specifically on action that
aims to either correct an excessive deficit or prevent an excessive
deficit.
"As we have consistently stated, the UK supports a prudent
interpretation of the Stability and Growth Pact, which takes into
account the economic cycle, sustainability and the important role
of public investment."
14.4 In her Explanatory Memoranda on the other documents the Minister
comments in almost identical terms.
Conclusion
14.5 We normally report on these documents
when we have them for all the Member
States. But as the opinions for Austria and the Netherlands will
probably not be available in time for the debate we refer to in
the next paragraph we report on what is before us now.
14.6 These documents and the Minister's
summaries give a useful overview of the prospects for the economies
of the Member States. We clear them, but they are relevant to
the debate we have recommended in paragraph 1 above on the Broad
Economic Policy Guidelines 2003.
35 Paragraph 1 above. Back
36
The twelve Member States that have adopted the euro have stability
programmes, whereas the other three Member States (UK, Denmark
and Sweden) produce convergence programmes. Back
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