29 Stability and Growth Pact
| (25934)
12197/04
COM(04) 581
| Commission Communication: Strengthening economic governance and clarifying the implementation of the Stability and Growth Pact
|
| Legal base | — |
| Document originated | 3 September 2004
|
| Deposited in Parliament | 10 September 2004
|
| Department | HM Treasury |
| Basis of consideration | EM of 27 September 2004
|
| Previous Committee Report | None
|
| To be discussed in Council | Not known
|
| Committee's assessment | Politically important
|
| Committee's decision | Cleared
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Background
29.1 In its most recent regular review of budgetary and fiscal
affairs in the EU the Commission discussed, in the context of
the Stability and Growth Pact and economic and fiscal surveillance,
four reforms of economic governance:
- more focus on debt and sustainability in the surveillance
of budgetary positions;
- taking account of more country-specific circumstances
in defining the medium-term objective of budgets "close to
balance or in surplus";
- taking account of economic circumstances and
developments in the implementation of the Excessive Deficit Procedure;
and
- earlier actions to correct inadequate budgetary
developments.[55]
The document
29.2 This Commission Communication suggests priorities
for reform of economic and fiscal surveillance within the EU,
including particularly the four matters previously discussed.
In relation to more focus on debt and sustainability the Commission
suggests
- identifying country-specific
medium-term objectives (see below);
- making operative the reference value of 60% of
Gross Domestic Product (GDP) for gross government debt set out
in the Maastricht Treaty; and
- taking account of sustainability risks when defining
the budgetary adjustments required for a Member State subject
to an Excessive Deficit Procedure (see below).
29.3 In relation to more country-specific circumstances,
the Commission suggests that, in defining the medium-term objective
for fiscal policy, debt levels and dynamics should be taken into
account when defining the "close to balance or in surplus"
objective. Low-debt countries would be allowed greater flexibility
to borrow.
29.4 On implementation of the Excessive Deficit Procedure,
the Commission discusses ways to consider economic circumstances,
in particular, possible amendments to the "exceptional circumstances"
clause of the Stability and Growth Pact, which defines the conditions
under which a deficit above 3 per cent of GDP would not be considered,
in the Treaty sense, excessive. It suggests widening the definition
of exceptional circumstances to include prolonged periods of low
but positive growth leading to a substantial loss of cumulated
output (in relation to output if growth had been at the trend
rate).
29.5 On earlier action to correct inadequate budgetary
developments, the Commission suggests making more effective use
of peer pressure and making use of the Broad Economic Policy Guidelines
to ensure sound fiscal policy when growth or output is above trend.
29.6 The Communication also suggests greater coordination
of budgetary policies with a reinforcement of links between the
Broad Economic Policy Guidelines, the Stability and Growth Pact
and national budgets. It also discusses other possible amendments
to economic surveillance procedures, including changes to the
timetable for the submission of stability and convergence programmes,
improving the quality of fiscal statistics and measures to improve
transparency and accountability.
The Government's view
29.7 The Financial Secretary to the Treasury (Mr
Stephen Timms) says:
"The document has no direct policy implications
for Member States. It has not been approved by Member States and
is non-binding.
"The UK has consistently argued for a prudent
interpretation of the [Stability and Growth Pact], grounded in
a sound economic rationale, which takes account of the economic
cycle and is applied symmetrically throughout the cycle; which
distinguishes between high and low debt countries; and which allows
for borrowing for public investment within prudent limits. Focusing
on clear objectives in this way and supported by reforms to enhance
co-ordination, transparency and accountability, provides a sound
basis for strengthening the Pact. The Government welcomes the
references and emphasis in the Commission's report on the sustainability
of public finances, in particular on taking greater account of
public debt. The Government will continue to make the case for
a prudent interpretation of the Pact."
Conclusion
29.8 Although non-binding, these developments
in the Commission's view of how the Stability and Growth Pact
should be implemented are noteworthy. We clear the document.
55 "Public finances in EMU - 2004", see (25800)
11137/04 + ADD1: HC 42-xxx (2003-04), para 17 (9 September 2004). Back
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