11 Stability and Convergence Programmes
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(26300)
5254/05
SEC(05) 17
(b)
(26301)
5255/05
SEC(05) 13
(c)
(26302)
5260/05
SEC(05) 11
(d)
(26303)
5261/05
SEC(05) 12
(e)
(26304)
5262/05
SEC(05) 14
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Draft Council Opinion on the updated convergence programme of the Czech Republic, 2004-2007
Draft Council Opinion on the updated stability programme of Luxembourg, 2004-2007
Draft Council Opinion on the updated stability programme of the Netherlands, 2004-2007
Draft Council Opinion on the updated stability programme of Austria, 2004-2008
Draft Council Opinion on the updated convergence programme of Sweden, 2004-2007
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| Legal base | Articles 99(4) and 104 EC; —; QMV
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| Documents originated | 11 January 2005
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| Deposited in Parliament | 20 January 2005
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| Department | HM Treasury
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| Basis of consideration | EM of 31 January 2005
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| Previous Committee Report | None
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| Discussed in Council | Adopted by ECOFIN 18 January 2005
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| Committee's assessment | Politically important
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| Committee's decision | Cleared
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Background
11.1 The Council of Economic and Finance Ministers (ECOFIN) issues
an Opinion on the stability or convergence programme of each Member
State.[38] 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 current 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
11.2 The documents provide the Council's Opinion on the stability
or convergence programmes of five Member States, which are assessed
in relation to the Commission's Autumn 2004 economic forecasts.
(The remaining Opinions will also be adopted during the early
months of 2005.) A summary of the Council's comments for each
of these Member State is provided by the Financial Secretary to
the Treasury (Mr Stephen Timms) in his helpful Explanatory Memorandum,
as follows:
Austria — Council Opinion on the updated Stability Programme,
2004-2008
"The Council Opinion notes that the macroeconomic
scenario envisages GDP growth will pick up from 1.9% in 2004 to
2.5% over the remaining of the programme period. However, it points
that although the assumptions are plausible in the first few years,
the scenario appears rather favourable thereafter. The Opinion
notes that Austria aims to achieve a balanced budget by 2008.
The deficit is expected to rise from 1.3% in 2004 to 1.9% in 2005,
and then decline to 1.7% in 2006 after which it drops to zero
in 2008. However, it concludes that the budgetary stance may not
be sufficient to meet the Stability and Growth Pact's medium term
objective since tax measures have been front-loaded while expenditure
restraint is back loaded. Nevertheless, the Opinion notes that
despite the favourable growth assumption and unspecified measures
in relation to the fall in the expenditure/GDP ratio, the Programme
provides sufficient margin against breaching the 3% of GDP deficit
threshold. The Opinion notes that Austria is in a favourable position
with regard to long-term sustainability but the evolution of the
debt ratio may be less favourable in light of the risks to the
budgetary target. Finally, the Opinion recommends that Austria
achieve a greater degree of frontloading in the overall budget
consolidation path and lay out greater detail on the specific
measures.
Czech Republic — Council Opinion on the
updated Convergence Programme, 2004-2007
"The Opinion notes that the baseline scenario
used in assessing budgetary projections reflects plausible growth
assumptions. GDP growth is expected to 3.8% in 2004, moderating
slightly in 2005 at 3.6%, and accelerating to 3.8% in 2008. On
5 July the Council decided that an excessive deficit existed in
the Czech Republic and recommended that it be corrected by 2008.
The Opinion notes that the Programme aims to reduce the deficit
from 5.2% of GDP in 2004, which includes one off measures of about
1.2% of GDP, to below the 3% reference value in 2008. With regards
to the risks to the budgetary projections, these are thought to
be balanced particularly in light of a cautious macroeconomic
scenario. However, the Opinion highlights that the Czech Republic
appears to be at serious risk with regard to the long-term sustainability
and that fiscal consolidation needs to be complemented with additional
reforms to reduce the risks associated with the projected increase
in pension and health care expenditures. The Council Opinion recommends
the Czech Republic to allocate higher-than-budgeted revenues to
deficit reduction and adhere strictly to medium term expenditure
ceilings. In addition, the Czech Republic is requested to step
up pension and healthcare reform to improve the long-term sustainability
of the public finances.
Luxembourg — Council Opinion on the updated
Stability Programme, 2004-2007
"The Council Opinion notes that on the basis
of currently available information the macroeconomic scenario
seems plausible. GDP growth is estimated to be 4.4% in 2004, from
2.9% in 2003, but is expected to decelerate to 3.8% and 3.3% in
2005 and 2006 respectively. The Opinion takes note that the update
aims to reduce the deficit to 1% in 2005 from 1.4% in 2004. But
the deficit thereafter is expected to remain at the same level
as in 2005 with both expected revenues and expenditures remaining
constant. The Opinion points that the budgetary projections in
the programme appear broadly balanced. It highlights that although
the Programme does not detail the measures that would achieve
a slowdown in public spending, Luxembourg is traditionally cautious
with regards to revenue projections and the Programme provides
sufficient safety margin against breaching the 3% reference value
of the Stability and Growth Pact. With a low debt ratio of around
5% of GDP, the Council Opinion highlights that Luxembourg appears
to be in a favourable position with regard to long-term sustainability.
The Netherlands — Council Opinion on the
updated Stability Programme, 2004-2007
"The Council Opinion notes that the macroeconomic
scenario underlying the Programme; GDP growth of 1% in 2004 and
1.5% in 2005 and on average 2.5% over the remaining period, reflects
a favourable growth assumption. On 2nd June 2004, the Council
decided that an excessive deficit existed in the Netherlands and
recommended that this be corrected by 2005. To this end, the Programme
encompasses a frontloaded consolidation effort, concentrated in
2004 and 2005. The Council Opinion notes that the risks to the
budgetary projections are broadly balanced as negative risks stemming
from the macroeconomic scenario are offset by positive risks.
The Council Opinion concludes the budgetary stance in the Programme
seems sufficient to reduce the deficit to below 3% by 2005 but
does not provide sufficient safety margin against breaching the
threshold in the following years. Although the debt ratio is projected
to rise over the programme period, the Council Opinion notes that
Netherlands is in a relatively favourable position with regard
to the long-term sustainability of public finances.
Sweden — Council Opinion on the updated
Convergence Programme, 2004-2007
"The Council Opinion notes that the on the basis
of currently available information the macroeconomic scenario
reflects plausible growth assumptions. GDP growth is expected
to be 3.5% in 2004 before moderating to 3.0% in 2005 and an average
of 2.4% in 2006-07. The Opinion highlights that although taxes
have been volatile in the last few years, the risks to the budgetary
projections are plausible in that Sweden has a good record in
not exceeding set expenditure ceilings. The Council concludes
that the budgetary stance in the programme seems sufficient to
maintain the achievement of surpluses over the 2004 to 2007 period
in line with the Stability and Growth Pact's medium term objective.
The Opinion also notes that with the debt ratio expected to decline
to 49% by 2007, Sweden appears to be in a favourable position
with regard to the long-term sustainability of the public finances."
The Government's view
11.3 The Minister comments:
"The UK has consistently stated that it 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. The UK agrees with the Council
Opinions in these five cases."
Conclusion
11.4 These documents, which we clear, and the
Minister's summaries give a useful overview of the prospects for
the economies of these five Member States.
38 The twelve Member States that have adopted the euro
have Stability Programmes, whereas the other 13 Member States
(UK, Denmark and Sweden and the ten new Member States) produce
Convergence Programmes. Back
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