16 Excessive government deficit in Hungary
| (26418)
6599/05
SEC(05) 226
| Draft Council Recommendation to Hungary with a view to bringing an end to the situation of an excessive government deficit
|
| Legal base | Article 104 EC; —; QMV
|
| Document originated | 16 February 2005
|
| Deposited in Parliament | 10 March 2005
|
| Department | HM Treasury |
| Basis of consideration | EM of 23 March 2005
|
| Previous Committee Report | None; but see (26248) 16310/04 (26272) 5053/05 (26298) 5050/05 (26299) 5052/05: HC 38-ix (2004-05), para 10 (23 February 2005)
|
| Discussed in Council | 8 March 2005
|
| Committee's assessment | Politically important
|
| Committee's decision | Cleared
|
Background
16.1 The Stability and Growth Pact adopted by the Amsterdam European
Council in June 1997 emphasised the obligation of Member States
to avoid excessive government deficits, defined as the ratio of
a planned or actual deficit to gross domestic product (GDP) at
market prices in excess of a "reference value" of 3%.[38]
The Pact also endorsed action in cases of an excessive government
deficit — the excessive deficit procedure provided for in
Article 104 EC and the relevant Protocol. This procedure consists
of Commission reports followed by a stepped series of Council
Recommendations (the final two steps do not apply to non-members
of the eurozone). Failure to comply with the final stage of Recommendations
allows the Council to require publication of additional information
by the Member State concerned before issuing bonds and securities,
to invite the European Investment Bank to reconsider its lending
policy for the Member State concerned, to require a non-interest-bearing
deposit from the Member State concerned whilst its deficit remains
uncorrected, or to impose appropriate fines on the Member State
concerned.
16.2 Following a reported deficit of 5.9% of GDP
in 2003, an excessive deficit procedure was initiated for Hungary
in May 2004. In July 2004, the ECOFIN Council issued a Recommendation
to the Hungarian Government "to put an end to the present
excessive deficit as rapidly as possible" and "to take
action in a medium term framework as foreseen in the Convergence
Programme submitted in May 2004". The Council established
a deadline of 5 November 2004 for "effective action regarding
measures envisaged to achieve the 2005 deficit target". In
December 2004, the Commission said that Hungary had taken no effective
action in response to the Council Recommendation of July 2004
within the deadline set. On 18 January 2005, the ECOFIN Council
concurred in that assessment. As Hungary is not in the eurozone
the next stage of the excessive deficit procedure — specific
recommendations on how to reduce the deficit, tied to a timetable
for reports on implementation — was not applicable. Rather,
it was expected that Hungary would receive another earlier-stage
Recommendation to deal with its deficit.[39]
The document
16.3 This document is the expected draft Recommendation.
The draft Recommendation, which was adopted by the ECOFIN Council
on 8 March 2005, recommends that Hungarian authorities:
- put an end to the present excessive
deficit situation as rapidly as possible;
- take action in order to bring the deficit below
3% of GDP by 2008, in accordance with the path for deficit reduction
as specified in the Council Opinion of 8 March 2005 on Hungary's
convergence programme update;[40]
- take effective action by 8 July 2005 regarding
additional measures, preferably structural, in order to achieve
the deficit target for 2005 as set in the updated convergence
programme;
- make the timing and implementation of any tax
cuts conditional upon the achievement of the deficit targets of
the convergence programme update; and
- seize every opportunity to accelerate the fiscal
adjustment, and to make progress with planned reforms of the public
administration, health and education systems with a view to improving
the long-term sustainability of the public finances.
The Government's view
16.4 The Financial Secretary to the Treasury (Mr
Stephen Timms) tells us that this document has no direct implications
for the UK.
Conclusion
16.5 We clear this document. But we draw it to
the attention of the House as it gives background information
on the operation of the Stability and Growth Pact.
38 This obligation does not apply to the UK whilst
it remains outside the eurozone, but the UK is required to endeavour
to avoid excessive deficits. Back
39
See headnote. Back
40
About which we report separately in paragraph 17 of this Report. Back
|
