Select Committee on European Scrutiny First Report


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

Legal baseArticles 99(4) and 104 EC; —; QMV
Document originated6 April 2005
Deposited in Parliament17 May 2005
DepartmentHM Treasury
Basis of considerationEM of 17 May 2005
Previous Committee ReportNone
Discussed in CouncilAdopted by ECOFIN 12 April 2005
Committee's assessmentPolitically important
Committee's decisionCleared

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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