6 Stability and Convergence Programmes
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Council Opinion on the updated stability programme of Germany
Council Opinion on the updated stability programme of Greece
Council Opinion on the updated stability programme of Spain
Council Opinion on the updated stability programme of France
Council Opinion on the updated stability programme of Ireland
Council on the updated stability programme of Italy
Council Opinion on the updated stability programme of the Netherlands
Council Opinion on the updated stability programme of Portugal
Council Opinion on the updated convergence programme of Cyprus
Council Opinion on the updated convergence programme of Lithuania
Council Opinion on the updated convergence programme of Malta
Council on the updated convergence programme of Poland
Council on the updated convergence programme of the United Kingdom
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| Legal base | Articles 99(4) and 104 EC; —; QMV
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| Deposited in Parliament | (a)-(h) 17 March 2006
(i)-(m) 22 March 2006
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| Department | HM Treasury |
| Basis of consideration | EM of 9 April 2006
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| Previous Committee Report | None
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| Discussed in Council | Adopted by ECOFIN 14 March 2006
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| Committee's assessment | Politically important
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| Committee's decision | Documents (a) to (l) cleared. Document (m) not cleared, further information requested
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Background
6.1 The Council of Economic and Finance Ministers (ECOFIN) issues
an Opinion each year on the stability or convergence programme
of each Member State.[14]
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
6.2 The documents provide the Council's Opinion on the stability
or convergence programmes of 13 Member States, which are assessed
in relation to the Commission's Autumn 2005 economic forecasts.
(We have already reported on 12 other Opinions).[15]
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:
Germany — Council opinion on the updated stability
programme, 2005-08
"The projection for growth foresees a pick
up from 0.9% in 2005 to 1.4% in 2006, with domestic demand gaining
momentum. After a slowdown to 1.0% in 2007 due to the introduction
of fiscal measures, growth rises to an average rate of 1.5% in
2005-2009. On 14 March 2006, the Council gave notice to Germany
in accordance with Article 104(9) to take measures to remedy the
situation of excessive deficit by 2007. The general government
budget deficit is consolidated from 3.3% in 2006 to 2.5% of GDP
in 2007. Thereafter, the deficit is projected to decline by 0.5ppt
[percentage point] of GDP, per year to reach 1.5% of GDP in 2009.
The gross debt-to-GDP ratio is projected to increase from 67.5%
in 2005 to 69% in 2006. Debt is then forecast to decline to 67%
of GDP by 2009. Due to the level of debt and budgetary position,
Germany is at medium risk with regard to the sustainability of
public finances."
Greece — Council opinion on the updated
stability programme, 2005-08
"The Greek economy has outperformed that
of the euro area since the mid-1990s. On the back of strong domestic
demand, the programme projects growth accelerating from 3.6% in
2005 to 4.0% in 2008. In February 2005, under Article 104(9),
the Council recommended correction of the excessive deficit by
the end of 2006. The general government budget deficit is projected
to decline from 4.3% of GDP in 2005 to 2.6% in 2006 and, then,
to 1.7% in 2008. The gross debt-to-GDP ratio is projected to fall
from around 108% of GDP in 2005 to below 97% in 2008, mainly driven
by the projected improvement in the primary surplus, and lower
debt-increasing financial operations. With regard to the sustainability
of public finances, Greece appears to be at high risk on grounds
of the projected budgetary costs of ageing populations."
Spain— Council opinion on the updated
stability programme, 2005-08
"The Spanish economy has outperformed that
of the euro area since the mid-1990s. GDP growth is projected
around 3.25% between 2005 and 2008, exclusively sustained by domestic
demand. The general government budget surplus is planned to decline
from 1% of GDP in 2005 to about 0.5% in 2008. The gross debt-to-GDP
ratio is projected to fall from 43% in 2005 to 36% in 2008, remaining
well below the 60% of GDP Treaty reference value. Spain appears
to be at medium risk on grounds of the projected budgetary costs
of ageing populations. This is due to the significant increase
in pension expenditures over the projection period."
France - Council opinion on the updated stability
programme, 2005-08
"France has been growing close to the euro
area average of 2.3% over the last ten years. Growth in 2005 was
1.4% and projected to be 2.0-2.5% in 2006. Beyond this two scenarios
are presented; a 'low growth scenario' foresees growth of 2¼%
each year over 2007-2009 while a 'high growth scenario' has 3.0%
growth over the same period. In December 2004, following the judgment
of the Court of Justice the deadline to correct the excessive
deficit under Article 104(7) was extended from 2004 to 2005. The
general government budget deficit is 3.0% in 2005 and projected
to move to -1.0% by 2009. The gross debt-to-GDP ratio is estimated
to have reached 66% of GDP in 2005, above the 60% of GDP Treaty
reference value. The programme projects the debt ratio to decline
by 3 percentage points by 2009. France appears to be at medium
risk on grounds of the projected budgetary costs of ageing populations.
Recent reforms, notably the 2003 pension reform, have substantially
helped to contain future rise in public expenditure."
Ireland - Council opinion on the updated stability
programme, 2005-08
"Ireland has experienced an impressively
rapid increase in real GDP per capita and employment levels over
the last decade. In recent years the Irish economy has continued
to grow at just below 5% per annum the highest rate in the euro
area. Projections for growth in 2006 and 2007 are 4.8% and 5.0%
respectively. In 2005, Ireland achieved a general government budget
surplus of 0.3% of GDP, projections for 2006 foresee a deficit
of between 0.6% and 0.8%. Gross debt in Ireland has declined from
just below 100% of GDP in the early 1990s, stabilising below 30%
of GDP in the current programme. The Council Opinion states that
the sustainability of the public finances in Ireland is at medium
risk on grounds of the projected budgetary costs of an ageing
population."
Italy — Council opinion on the updated
stability programme, 2005-08
"Between 1995 and 2004, Italian GDP grew
at an average rate of 1.5% per year, below the 2% of the euro
area. The programme projects GDP growth to recover from zero in
2005 to 1.5% in 2006 and 2007. In July 2005 the Council issued
Recommendations under Article 104(7) to correct the excessive
deficit by the end 2007 and that effective action is taken by
12 January 2006. On 22 February 2006, the Commission adopted a
communication concluding that the actions taken by Italy before
the 12 January 2006 deadline set by the Council, if fully implemented,
would be consistent with the consolidation path contained in the
Council recommendation. The 2005 general government budget deficit
is estimated at 4.3% of GDP then projected to fall below 3.0%
in 2007 to 2.8%. At 108.5%, the gross debt-to-GDP ratio is expected
to increase in 2005 for the first time since 1994, then to fall
just below 102% by 2009. Italy appears to be at medium risk on
grounds of the projected budgetary costs of an ageing population.
Past reforms have helped to contain future rises in public expenditure
and their full implementation, notably of the 2004 pension reform,
will be crucial to obtain the expected results."
The Netherlands — Council opinion on
the updated stability programme, 2005-08
"The programme projects real GDP growth
to increase from an estimated 0.75% in 2005 to 2.5% in both 2006
and 2007, before slowing to 2.25% in 2008. The general government
budget deficit fell to 1.2% of GDP in 2005, it is projected to
increase to 1.5% in 2006 and subsequently to stabilise at around
1.1% of GDP. Gross government debt is projected to stabilise in
2006 at 54.5% of GDP before gradually decreasing to around 53%
in 2008. With regards to the sustainability of public finances,
the Netherlands appears to be at low risk on grounds of the projected
budgetary costs of ageing populations."
Portugal — Council opinion on the updated
stability programme, 2005-08
"Economic growth declined significantly
to only 0.5% per year between 2001 and 2005, significantly lagging
behind the euro area average of around 1.4%. On 20 September 2005,
the Council decided that Portugal was in excessive deficit and
recommended under Article 104(7) correction by 2008. Following
the expiry of the six-month period foreseen by the recommendation,
the Commission is due to carry out an assessment of the action
taken by the Portuguese authorities in order to achieve the 2006
deficit target. In 2005, the general government budget deficit
reached 6% of GDP and is forecast to decline to 4.6% in 2006,
and further to 3.7% of GDP in 2007, 2.6% in 2008 and 1.5% of GDP
in 2009. Gross debt reached 65.5% of GDP in 2005, and is projected
to increase to 69% of GDP in 2007 before declining to slightly
above 66% of GDP by 2009. The Council concluded that the sustainability
of public finances is at high risk from future age-related expenditure."
Cyprus — Council opinion on the updated
convergence programme, 2005-08
"In 2004, under Article 104(7) the Council
decided that Cyprus was in excessive deficit. It was given until
2005 to reduce its deficit below 3%. Better than expected growth
in 2004 and 2005 helped reduce the general government budget deficit
faster than expected. The deficit is now 2.5% in 2005 and forecast
to continue to decrease to 1.9% of GDP in 2006 and 1.8% in 2007.
Growth is expected to remain robust increasing from 4.1% in 2005
to 4.2% in 2006, 2007 and 2008. The gross debt-to-GDP ratio is
projected to follow a steady decline from 70.5% in 2005 to 53.5%
in 2009, as a result of steady growth. Long-term sustainability
of public finances is at high risk due to high government debt,
poor demographics and the need for considerable pension and health
reforms."
Lithuania — Council opinion on the updated
convergence programme, 2005-08
"Growth of GDP was 7% in 2005 and is forecast
to slow in 2006 to 6%, and further to 5.3% in 2007. The general
government budget deficit is forecast to decrease from 1.5% of
GDP in 2005 to 1.4% in 2006 and 1.3% in 2007. The gross debt-to-GDP
ratio is low 19.9% in 2006 and decreasing to 18.9% by 2008. The
Opinion states that the long-term sustainability of public finances
is at low risk."
Malta — Council opinion on the updated
convergence programme, 2005-08
"In 2004, under Article 104(7) the Council
decided that Malta was in excessive deficit requiring correction
by 2006. The general government budget deficit is forecast to
decrease from 3.9% of GDP in 2005 to 2.7% in 2006. The deficit
is projected to decrease further to 1.2% by 2008. Recovering domestic
demand is expected to help growth pick up to 1.1% and 1.2% in
2006 and 2007 respectively. External demand takes a more prominent
role in 2008 pushing growth to 2%. Privatisation proceeds are
expected to assist a decrease in gross government debt from 76.7%
of GDP in 2005 to 67.3% in 2008. The long-term sustainability
of public finances is at medium risk from the impact of an ageing
population, due to high gross debt and the need for pension reforms."
Poland — Council opinion on the updated
convergence programme, 2005-08
"GDP growth is forecast to recover throughout
the projection period rising from 3.3% in 2005 to 4.3% in 2006
and 4.6% in 2007. In 2004, the Council decided that Poland was
in excessive deficit under Article 104(7). As it faces special
circumstances, it was given until 2007 to reduce its general government
budget deficit below 3%. The deficit is forecast to fall from
2.6% in 2006 to 2.2% in 2007 and 1.9% in 2008. Gross government
debt was 42.5% of GDP in 2005 and is expected to increase to 45.4%
by 2008. Full implementation of the 1999 pension reform place
Poland at low risk in terms of the long-term sustainability of
public finances."
United Kingdom — Council opinion on
the updated convergence programme, 2005-08
"UK macroeconomic performance has been impressive
in the last decade. Growth is now forecast to pick up from 1.75%
in 2005-06 to 3% in 2007-08, and then to dip to 2.75% and 2.25%
thereafter. The Opinion notes that the Council adopted a Recommendation
under Article 104(7) in January 2006. Following the expiry of
the six month period foreseen by the recommendation, the Commission
is due to carry out an assessment of progress made. Projections
show a reduction in the general government budget deficit from
just over 3% of GDP in 2005-06 to below 3% in 2006-07 and a decline
to 1.5% percent of GDP by 2010-11. The gross debt-to-GDP ratio
remains well below the Treaty 60% of GDP reference value throughout
the programme period. The Opinion states that although contained
rises in public pensions expenditure are projected, higher age-related
expenditure pressures are possible. It therefore concluded that
unless changes are made, the UK would be at medium risk in terms
of fiscal sustainability."
The Government's view
6.3 The Minister comments, again 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 thirteen cases".
Conclusion
6.4 These documents and the Minister's summaries
give a useful overview of the prospects for the economies of these
13 Member States. We clear 12 of them.
6.5 However we note that the fifth point of the
Opinion on the UK's programme reads: "The programme broadly
follows the model structure, but deviates on some material points
from the data provision requirements for stability and convergence
programmes specified in the new code of conduct." And a footnote
adds:
"In particular, the section on institutional
features of the public finances is missing. The programme has
gaps in the provision of compulsory data (for example, the forecasts
for employment, unemployment and compensation of employees, and
the breakdown of expenditure for the last year required are not
provided), and does not provide all optional data. Data for general
government expenditure and receipts, while based on ESA 95 components,
use different aggregation methods from the harmonised measure.
The programme update also continues the UK practice of accounting
receipts from the sale of UMTS[16]
licences as an annual income stream rather than the sale of an
asset, contrary to the Eurostat decision of 14 July 2000 on the
allocation of such receipts. A number of data gaps have been filled
through bilateral discussions between the Commission services
and UK officials."
6.6 These comments imply a degree of dissatisfaction
in the Council with the presentation of the UK programme. Before
we consider the document further we should like to hear from the
Minister as to:
- the significance of the
omissions in the data, particularly compulsory data, presented;
- the reasons for some data being aggregated
differently from the harmonised measure;
- the reason for presenting UMTS licence income
in a way contrary to the Eurostat view of how it should be shown;
and
- which data gaps the Government have been able
to agree to fill and which not.
6.7 Meanwhile this document remains uncleared.
14 The 12 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
15
See (27280) 6323/06 (27281) 6324/06 (27282) 6325/06 (27283) 6326/06
(27284) 6327/06 (27285) 6328/06: HC 34-xxii (2005-06), para 13
(15 March 2006) and (27224) 5612/06 (27225) 5613/06 (27226) 5614/06
(27227) 5615/06 (27228) 5616/06 (27229) 5617/07: HC 34-xxiii,
para 23 (29 March 2006). Back
16
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