13 Stability and Convergence Programmes
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(27280)
6323/06
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(b)
(27281)
6324/06
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(c)
(27282)
6325/06
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(d)
(27283)
6326/06
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(e)
(27284)
6327/06
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(f)
(27285)
6328/06
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Council Opinion on the updated stability programme of Belgium
Council Opinion on the updated stability programme of Luxembourg
Council Opinion on the updated stability programme of Austria
Council Opinion on the updated convergence programme of Estonia
Council Opinion on the updated convergence programme of Latvia
Council Opinion on the updated convergence programme of Slovenia
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| Legal base | Articles 99(4) and 104 EC; —; QMV
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| Deposited in Parliament | (All) 28 February 2006
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| Department | HM Treasury |
| Basis of consideration | EM of 6 March 2006
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| Previous Committee Report | None
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| Discussed in Council | Adopted by ECOFIN 14 February 2006
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| Committee's assessment | Politically important
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| Committee's decision | Cleared
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Background
13.1 The Council of Economic and Finance Ministers (ECOFIN) issues
an Opinion each year on the stability or convergence programme
of each Member State.[41]
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
13.2 The documents provide the Council's Opinion on the stability
or convergence programmes of six Member States, which are assessed
in relation to the Commission's Autumn 2005 economic forecasts.
(We expect Opinions on the remaining Member States will come to
us in due course.) A summary of the Council's comments for each
of these Member States is provided by the Economic Secretary to
the Treasury (Mr Ivan Lewis) in his helpful Explanatory Memorandum,
as follows:
Belgium — Council Opinion on the updated stability
programme, 2005-2009
"Growth in 2005 almost halved from 2004, falling from
2.6 percent to 1.4 percent as rising oil prices reduced international
competitiveness, and labour markets continued to perform poorly.
A sixth consecutive balanced budget was achieved in 2005 and is
forecast to continue into 2006, before a budget surplus starts
to grow gradually reaching 0.7 percent in 2009. Belgium's public
debt-GDP [gross Domestic Product] ratio is the third highest in
the EU25. However, it is forecast to decrease from 94.3 percent
of GDP in 2005 to 79.1 percent of GDP in 2009. The Council feels
that this medium-term target is achievable. Nevertheless, the
relative size of public debt puts the sustainability of public
finances at medium risk."
Luxembourg — Council opinion on the updated stability
programme, 2005-2008
"Following a slowdown in 2001, growth is forecast to
pick up from 4 percent in 2005 to 4.9 percent in 2007 and 2008.
Budgetary slippages in 2005, in the form of an unexpected large
VAT reimbursement widened the budget deficit to 2.3 percent of
GDP, against a target of 1 percent of GDP. The deficit is projected
to decrease to 0.2 percent of GDP in 2008, which the Council deems
to be somewhat optimistic. The debt-GDP ratio remains the second
lowest in the EU25. It is forecast to rise from 6.4 percent of
GDP in 2005 to 10.2 percent of GDP in 2008, with the biggest rise
occurring in 2006 (3.2 percentage points). Despite the low levels
of debt, deteriorating demographics are expected to increase future
age related expenditure, posing a medium level of risk to the
long-term sustainability of public finances. The Council recommends
improving long-term sustainability through pension reforms to
contain the projected rise in age-related expenditure."
Austria — Council opinion on the updated stability
programme, 2005-2008
"The general government deficit is projected to decline
from 1.9 percent in 2005 to a balanced budget in 2008 with most
of the fiscal consolidation occurring in latter years of the programme
and following forthcoming elections. Rising oil prices outweighed
the impact of expansionary fiscal policy in 2005 as growth slowed
from 2.4 percent (2004) to 1.7 percent. A slight recovery is forecast
for 2006 before accelerating in 2007 and 2008. Public debt is
projected to fall by 3.4 percentage points over the programme
period, thereby falling below the 60 percent of GDP Treaty reference
value. Long-term public finance sustainability is at low risk
while pension reform is progressing."
Estonia — Council opinion on the updated convergence
programme, 2005-2009
"The Estonian programme was commended as a "good
example" of fiscal policy. High employment growth and
strong FDI [foreign direct investment] inflows in 2004 led to
growth being revised substantially up from 5.6 percent to 7.8
percent. Future growth is expected to slow in 2005 before stabilising
at 6.3 percent from 2007 onwards. High growth and improvements
in tax collection led to a higher than expected budget surplus
of 0.4 percent of GDP in 2005. This is forecast to gradually decrease
to a balanced budget by 2009. Estonia has the lowest public debt-GDP
ratio in the EU25. Debt is projected to decrease further from
4.6 percent of GDP in 2005 to 2.8 percent in 2009. Low debt and
projected decreases in age-related expenditure has led the Council
to conclude that the sustainability of public finances is at low
risk from future age-related expenditure."
Latvia — Council opinion on the updated convergence
programme, 2005-2008
"Despite recent strong growth, Latvia remains the poorest
of the EU member states. Growth of 8.4 percent is projected for
2005, but is forecast to decelerate to 7.5 percent by 2006, 7
percent in 2007 and 2008 — closer to its long-term trend
average. Inflation rose sharply in 2004 and remains above 6 percent
— the highest in the EU25. Stronger growth in 2004 and upward
revisions to forecasts for 2005 have led to a reduction of the
2004 budget deficit from 1.7 percent to 1 percent of GDP. The
deficit is expected to peak at 1.5 percent of GDP in 2005 and
2006, before gradually deceasing to 1.3 percent in 2008. Public
debt remains one of the lowest in the EU25 and is expected to
remain stable around 15 percent of GDP. Long-term sustainability
of public finances is at low risk. This reflects the low level
of debt in conjunction with pension reforms launched in 1996,
which are contributing significantly to containing the projected
budgetary impact of an ageing population.
"Relatively high inflation and a positive output-gap
have raised concerns about external imbalances ahead of Euro entry
in 2008. The Council recommends addressing these issues sooner
rather than later."
Slovenia — Council opinion on the updated convergence
programme, 2005-2008
"Driven by strong domestic demand and exports, growth
is forecast to remain robust averaging 4 percent over the programme
period. The government budget deficit is projected to decrease
from 1.7 percent of GDP in 2005 to 1 percent of GDP in 2008. Public
debt is well below the EU25 average at 29 percent of GDP in 2005,
and is expected to remain stable over the forecast period. However,
the Council has concluded that Slovenia is at high risk in term
of the long-term sustainability of public finances on grounds
of the projected costs of an ageing population, and will recommend
further measures, particularly in relation to pension system reforms."
The Government's view
13.3 The Minister comments, in words similar to those of his predecessors
in relation to such documents in earlier years:
"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."
He adds that "The UK agrees with the Council Opinions in
these six cases."
Conclusion
13.4 These documents, which we clear, and the Minister's summaries
give a useful overview of the prospects for the economies of these
six Member States.
41 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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