54 Stability and convergence programmes:
Greece
| (26483)
7805/05
SEC(05) 440
| Draft Council Opinion in accordance with the third paragraph of Article 5 of Regulation (EC) No. 1466/97 of 7 July 1997 on the updated stability programme of Greece, 2004-2007
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| Legal base | Articles 99(4) and 104 EC; —; QMV
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| Document originated | 6 April 2005
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| Deposited in Parliament | 17 May 2005
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| Department | HM Treasury
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| Basis of consideration | EM of 17 May 2005
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| Previous Committee Report | None
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| Discussed in Council | Adopted by ECOFIN 12 April 2005
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| Committee's assessment | Politically important
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| Committee's decision | Cleared
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Background
54.1 The Council of Economic and Finance Ministers (ECOFIN) issues
an Opinion each year on the stability or convergence programme
of each Member State.[196]
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 document
54.2 The document provides the Council's Opinion on the stability
programme of Greece, which is assessed in relation to the Commission's
Spring 2005 economic forecasts. (Our predecessors have already
reported on the Opinions for 23 Member States[197]
and we expect to report on the remaining Opinion, for Portugal,
in due course.) A summary of the Council's comments for Greece
is provided by the Economic Secretary to the Treasury (Mr Lewis)
in his helpful Explanatory Memorandum, as follows:
"The Council Opinion notes that the Programme considers three
different macroeconomic scenarios. The baseline scenario is judged
to be overoptimistic. The Opinion states that the second and least
buoyant of the scenarios reflects plausible macroeconomic scenarios
assumptions and is therefore used for the assessment of the Programme.
Under this alternative scenario real GDP is projected to grow
at 2.9% in 2005 and marginally accelerate to 3% in 2006 and 2007.
"The Opinion notes that that the general government
balance of 2004 is estimated to have recorded a deficit of 6.1%
of GDP. This deficit is 0.8 percentage points higher than the
figure of 5.3% of GDP estimated by the Greek government in autumn
2004. The budgetary strategy of the Greek government aims at reducing
the deficit below the 3% of GDP reference value by 2006, in line
with the Council decision under Article 104(9). The Programme
targets a reduction of the nominal general government budget deficit
by 3.6 percentage points over the Programme period, from the outturn
of 6.1% of GDP in 2004 to 2.4% in 2007. However the Opinion notes
that the budgetary stance in the Programme does not provide sufficient
safety margin against breaching the fiscal deficit, 3% of GDP,
reference value with normal cyclical fluctuations nor does it
achieve the Stability and Growth Pact's medium term objective
of a budgetary position of close-to-balance or surplus throughout
the Programme period.
"The Programme projects the debt to GDP ratio
to decline from 110.5% of GDP in 2004 to 109.5% in 2005 and then
to 107.2% in 2006 and 104.7% in 2007. A faster debt reduction
is hampered by significant debt-increasing stock-flow adjustments,
which are expected to remain significant. The Opinion notes that
Greece appears to be at serious risk with regard to the long-term
sustainability of public finances. The considerable increase projected
In age-related spending suggests that additional measures to control
public pension expenditures, including the resolute implementation
of reform measures enacted, are necessary.
"In view of the assessment, the Council Opinion
states that Greece should:
— implement the necessary permanent measures
leading to the correction of the excessive deficit by 2006 at
the latest;
— reduce the cyclically-adjusted deficit
by at least 0.5% of GDP from 2007 onward, preferably through primary
spending control measures, leading to a close-to-balance or in-surplus
position in the medium term;
— enhance the efforts to identify and control
factors other than net borrowing, which contribute to the change
in debt levels, in order to ensure a reduction in the government
gross debt ratio so as to approach the reference value at a faster
pace;
— control public pension expenditures and
resolutely implement the enacted reforms to ensure the sustainability
of public finances;
— further improve the collection and processing
of general government data in collaboration with Eurostat, notably
by enhancing the mechanisms that ensure a prompt and correct supply
of this data."
The Government's view
54.3 The Minister comments as his predecessor did
on previous Opinions:
"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."
Conclusion
54.4 This document and the Minister's summary
give a useful overview of the prospects for the Greek economy.
We clear the document. We note that the Council Opinion reinforces
and complements the Decision the Council reached on Greece's situation
on 17 February 2005 and on which we report in paragraph 53 of
this Report.
196 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
197
See (26300) 5254/05 (26301) 5255/05 (26302) 5260/05 (26303) 5261/05
(26304) 5262/05: HC 38-viii (2004-05), para 11 (10 February 2005);
(26367) 6082/05 (26368) 6083/05 (26369) 6084/05 (26370)6085/05
(26371) 6086/05 (26372) 6087/05 (26373) 6088/05 (26374) 6089/05
(26375) 6090/05 (26376) 6091/05 (26377) 6092/05: HC 38-xi (2004-05),
para 13 (15 March 2005); and (26409) 6634/05 (26410) 6636/05 (26411)
6637/05 (26412) 6638/05 (26413) 6639/05 (26414) 6640/05 (26415)
6641/05: HC 38-xv (2004-05), para 17 (6 April 2005). Back
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