2 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 France
Council Opinion on the updated Stability Programme of Ireland
Council Opinion on the updated Stability Programme of Italy
Council Opinion on the updated Stability Programme of Luxembourg
Council Opinion on the updated Stability Programme of the Netherlands
Council Opinion on the updated Stability Programme of Portugal
Council Opinion on the updated Stability Programme of Finland
Council Opinion on the updated Stability Programme of Slovenia
Council Opinion on the updated Convergence Programme of Denmark
Council Opinion on the updated Convergence Programme of Estonia
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 Hungary
Council Opinion on the updated Convergence Programme of Malta
Council Opinion on the updated Convergence Programme of Poland
Council Opinion on the updated Convergence Programme of Slovakia
Council Opinion on the updated Convergence Programme of Sweden
Council Opinion 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 | 5 March 2007
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| Department | HM Treasury |
| Basis of consideration | EM of 26 March 2007
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| Previous Committee Report | None
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| Discussed in Council | Adopted by the ECOFIN Council on 27 February 2007
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| Committee's assessment | Politically important
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| Committee's decision | For debate in European Standing Committee
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Background
2.1 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%.[3]
Each year the Council of Economic and Finance Ministers (ECOFIN)
issues an Opinion on the updated stability or convergence programme
of each Member State.[4]
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. This whole procedure
is essentially the Pact's preventative arm.
2.2 On the other hand, the Pact also endorsed a corrective arm
involving 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
ECOFIN 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.
The documents
2.3 These documents provide the Council's Opinion on the stability
or convergence programmes of 20 Member States, which are assessed
in relation to the Commission's autumn 2006 economic forecasts.
A summary of the Council's comments for each of these Member States
is provided by the Economic Secretary to the Treasury (Ed Balls)
in his helpful Explanatory Memorandum, as follows:
Germany — Council opinion on the updated stability
programme, 2005-2008
"Real GDP growth is estimated to temporarily slow down
from 2.3% in 2006 to 1.4% in 2007, after which it is projected
at 1.75% on average over the rest of the programme period. For
2006, the programme cites a general government deficit of 2.1%of
GDP (revised down to 1.9% by latest government announcement),
against a target of 3.3% of GDP set in the previous update of
the stability programme. After the envisaged correction of the
excessive deficit in 2006, the deficit ratio is projected to decline
by 0.5 percentage points per year (except in 2008) to reach 0.5%
of GDP in 2010. Germany is currently still in Excessive Deficit
procedure, yet in its Council Opinion of October 2006[5]
the Council stated that Germany had taken effective action in
correcting its excessive deficit and no further steps in the excessive
deficit procedure were needed. Government gross debt is estimated
to have levelled off at 67.9% of GDP in 2006, above the 60% of
GDP Treaty reference value. The programme projects the debt ratio
to decline by 3.5 percentage points over the programme period.
Overall, Germany appears to be at medium risk with regard to the
sustainability of public finances."
Greece — Council opinion on the updated stability
programme, 2005-2009
"Real GDP growth is expected to be broadly stable at
around 4% per year. For 2006, the general government deficit is
estimated at 2.6% of GDP in the Commission services' autumn 2006
forecast and in the new update, fully in line with the target
set in the previous update of the stability programme. The budgetary
strategy in the programme aims at correcting the excessive deficit
in 2006. Thereafter, the government deficit is planned to continue
narrowing steadily over the programme period, to 1.2% of GDP in
2009. The Council-imposed six-month deadline for the correction
of the deficit having expired at the end of 2006, the Commission
informed the Council that measures taken buy [sic] the Greek authorities
were consistent with recommendations and no further steps were
necessary. Government gross debt is estimated to have reached
104% of G[D]P in 2006, far above the 60% of GDP Treaty reference
value. The programme projects the debt ratio to gradually decline
by almost 13 percentage points of GDP over the programme period.
Overall, Greece appears to be at high risk with regard to the
sustainability of public finances."
France — Council opinion on the updated stability
programme, 2005-2009
"Growth is estimated at between 2% and 2.5% in 2006/07.
From then on it declines slightly to 2.25% for the rest of the
programme period. For 2006, the general government deficit is
estimated at 2.7% of GDP in the Commission services' autumn 2006
forecast, against a target of 2.9% of GDP for 2006 set in the
previous update of the stability programme. The programme foresees
a continuous but back loaded decrease in the headline deficit
from 2.7% of GDP in 2006 (2.5% in 2007) to 0% of GDP in 2010,
amounting to an overall reduction by 2.7 percentage points of
GDP. France is currently in the excessive deficit procedure and
the deficit is projected at 2.6% in 2007.[6]
Government gross debt is estimated to have reached 64.6% of GDP
in 2006, above the 60% of GDP Treaty reference value. The programme
projects the debt-to-GDP ratio to decline by 6.5 percentage points
over the programme period. Overall, France appears to be at medium
risk with regard to the sustainability of public finances."
Ireland — Council opinion on the updated stability
programme, 2005-2009
"Real GDP growth is expected to edge lower from 5.4%
in 2006 to an average of a little above 4.5% over the rest of
the programme period. For 2006 the general government balance
is estimated in the programme as a surplus of 2.3% of GDP, against
a budgeted deficit of 0.6% of GDP in the previous update. Surpluses
are projected to be maintained throughout the programme period,
moderating from an estimated headline surplus of 2.3% of GDP in
2006 to 1.2% in 2007 and progressively declining to 0.6% in 2009.
Government gross debt is estimated to have declined to around
25% of G[D]P in 2006, well below the 60% of GDP Treaty reference
value. The programme projects the debt ratio to decline by a further
three percentage points over the programme period. Overall, Ireland
appears to be at medium risk with regard to the sustainability
of public finances."
Italy — Council opinion on the updated stability
programme, 2005-2009
"Real GDP growth is expected to initially decline from
1.6% in 2006 to 1.3% in 2007. Afterwards, economic growth will
gradually pick up, to reach 1.7% in 2011. The 2006 stability programme
update projects the 2006 deficit as 5.7% of GDP. The budgetary
strategy in the programme aims at correcting the excessive deficit
in 2007 (the deficit is planned to decline to 2.8% of GDP). Thereafter,
the government balance is planned to continue improving steadily
over the programme period, to turn into a positive 0.1% of GDP
in 2011. Italy is currently in the excessive deficit procedure
and the deficit is projected at 2.9% in 2007. Government gross
debt is officially estimated to have reached 107.6% of GDP in
2006, far above the 60% of GDP Treaty reference value. The programme
projects the debt ratio to gradually decline to reach around 98%
of GDP in 2011. Overall, Italy appears to be at medium risk with
regard to the sustainability of public finances."
Luxembourg — Council opinion on the updated stability
programme, 2005-2009
"Real GDP growth is expected to decelerate from 5.5%
in 2006 to 4.3% on average over the rest of the programme period.
For 2006, the general government deficit is estimated at 1.0%
of GDP in the Commission services' autumn 2006 forecast, against
a target of 1.8% of G[D]P set in the previous update of the stability
programme. The medium-term budgetary strategy is to regain a balanced
position within the programme horizon. This is to be achieved
through a progressive improvement of the general government balance
from an estimated deficit of 1.5% of GDP to a small surplus in
2009 (0.1% of GDP). Government gross debt is estimated to have
reached 7.5% of GDP in 2006, well below the 60% of GDP Treaty
reference value. The programme projects the debt ratio to rise
slightly to 8.5% of GDP by the end of the programme period. Overall,
Luxembourg appears to be at medium risk with regard to the sustainability
of its public finances."
The Netherlands — Council opinion on the updated
stability programme, 2005-2009
"Real GDP is estimated to grow by 3.25% in 2006, 3% in
2007 and 1.75% per year over the rest of the programme period.
For 2006, the general government position is estimated to be balanced
in the Commission services' autumn 2006 forecast, against a target
of -1.5% of GDP set in the previous update of the stability programme.
The programme projects the general government surplus to improve
from 0.1% of GDP in 2006 to 0.9% in 2009. Government gross debt
is estimated to have fallen to 50.2% of GDP in 2006, below the
60% of GDP Treaty reference value. The programme projects the
debt ratio to further decline by 6 percentage points over the
programme period. Overall, the Netherlands appears to be at low
risk with regard to the sustainability of public finances."
Portugal — Council opinion on the updated stability
programme, 2005-2009
"Real GDP growth is expected to pick up from 1.4% in
2006 to 1.8% in 2007 and 2.4% in 2008 and eventually to 3% per
year over the rest of the programme period. For 2006, the general
government deficit is estimated at 4.6% of GDP in the Commission
services' autumn 2006 forecast. It is targeted to gradually decline
from 4.6% of GDP in 2006 to 0.4% in 2010. Portugal is currently
in the excessive deficit procedure and the deficit is projected
close to 4% in 2007. Government gross debt is estimated to have
reached 67.5% of GDP in 2006, above the 60% of GDP Treaty reference
value. The programme projects the debt ratio to increase in 2007
and to decline by close to 6 percentage points over the rest of
the programme period. Overall, Portugal appears to be at high
risk with regard to the sustainability of public finances."
Finland — Council opinion on the updated stability
programme, 2005-2009
"Real GDP growth is expected to decelerate from a cyclical
peak of 4.5% in 2006 to 2.5% on average over the rest of the programme
period. For 2006, the general government surplus is estimated
at 2.9% of GDP in both the Commission services' autumn forecast
and in the current programme update, against a target of 1.6%
of GDP set in the previous update of the stability programme.
The general government headline and primary surpluses are projected
to follow a slight downward trend, both declining by 0.5% of GDP
until 2010. Government gross debt is estimated to have declined
to 39% of GDP in 2006, well below the 60% Treaty reference value.
The programme projects the debt ratio to decline by 5.5 percentage
points over the programme period. Overall, Finland appears to
be at low risk with regard to the sustainability of public finances."
Slovenia — Council opinion on the updated stability
programme, 2005-2009
"Real GDP is estimated to grow steadily at above 4% over
the programme period. For 2006, the general deficit is estimated
at 1.6% of GDP in the Commission services' autumn 2006 forecast,
against a target of 1.7% of GDP set in the December 2005 update
of the convergence programme. Until 2008, the general government
deficit is planned to linger at around 1.5% of GDP. In 2009, the
deficit declines to 1.0% as expenditure reduction outweighs the
revenue loss. Government gross debt is estimated to have reached
28.5% of GDP in 2006, well below the 60% of GDP Treaty reference
value. The programme projects the debt ratio to decline by 0.8
percentage points over the programme period. Overall, Slovenia
appears to be at high risk with regard to the sustainability of
public finances."
Denmark — Council opinion on the updated convergence
programme, 2005-2009
"Real GDP growth is expected to slow from 2.7% in 2006
to 1.0% on average over the rest of the programme period. For
2006, the general government surplus is estimated at 3.2% of GDP
in the Commission services' autumn 2006 forecast, against a target
of 2.1% of GDP set in the previous update of the convergence programme.
The budgetary strategy aims at maintaining structural surpluses
of between 0.5% and 1.5% of GDP on average over the programme
period to 2010, implying a marked reduction in the general government
debt ratio. Government gross debt is estimated to have declined
below 30% of GDP in 2006, well below the 60% of GDP Treaty reference
value. The programme projects the gross debt ratio to decline
by around a further 11 percentage points over the programme period.
Denmark appears to be at low risk with regard to the sustainability
of public finances."
Estonia — Council opinion on the updated convergence
programme, 2005-2009
"Real GDP growth is estimated to abate from a peak of
11% in 2006 to 8.25% in 2007 and 7.5% per year in the outer years.
For 2006, the general government surplus is estimated at 2.5%
of GDP in the Commission services 2006 forecast, against a target
of 0.3% of GDP set in the previous update. The budgetary strategy
foresees the headline general government surplus to decline from
2.5% of GDP in 2006 to around 1.25% in 2007-2008 and rebound to
around 1.5% of GDP thereafter. Government gross debt is estimated
to have fallen to 3.7% of GDP in 2006, far below the 60% of GDP
Treaty reference value. The programme projects the debt ratio
to decline by a further 2 percentage points over the programme
period. Overall, Estonia appears to be at low risk with regard
to the sustainability of public finances."
Cyprus — Council opinion on the updated convergence
programme, 2005-2009
"Real GDP growth is expected to pick up from 3.7% in
2006 to 4.1% on average over the rest of the programme period.
For 2006, the general government deficit is estimated at just
below 2% of GDP in the Commission services' autumn 2006 forecast,
as target in the previous update of the convergence programme.
The general government balance is projected to improve from a
deficit of 1.9% of GDP in 2006 to a balanced position in 2010.
Government gross debt is estimated to have reached 64.75% in 2006,
above the 60% of GDP Treaty reference value. The programme projects
that the debt ratio would fall below the 60% of GDP reference
value in 2008 and would attain just above 46% of GDP by the end
of the programme period. Overall, Cyprus appears to be at high
risk with regard to the sustainability of public finances."
Lithuania — Council opinion on the updated convergence
programme, 2005-2009
"Real GDP growth is expected to decelerate progressively
from 7.8% in 2006 to 4.5% in 2009. For 2006, the general government
deficit is estimated at 1% of GDP in the Commission services'
autumn 2006 forecast against a target of 1.4% of GDP set in the
previous update of the convergence programme. The primary deficit
is expected to be in balance by 2007 and to record a surplus of
0.8% of GDP at the end of the programme period. Government gross
debt is estimated to have reached 18.5% of GDP in 2006, well below
the 60% of GDP Treaty reference value. The programme projects
the debt ratio to remain at around 19% of GDP in 2007-2008 before
decreasing to 17.75% in 2009. Overall, Lithuania appears to be
at low risk with regard to the sustainability of public finances."
Hungary — Council opinion on the updated convergence
programme, 2005-2009
"The economy is expected to slow down for the years 2007
and 2008 (2.2% and 2.6%, respectively), with a recovery to pre-consolidation
growth rates of 4.2% in 2009. For 2006, the general government
deficit is estimated at 10.1% of GDP in the Commission services'
autumn forecast, with a projected reduction to -3.2% by 2009 and
a further reduction in 2010. Hungary is still in the excessive
deficit procedure. After having concluded twice that Hungary did
not comply with its previous recommendations of July 2004 and
March 2005, the Council issued new recommendations in October
2006 identifying measures to correct the deficit by 2009, one
year later than previously planned.[7]
The authorities will supply the first report on progress made
by mid-April 2007. The government gross debt is estimated to have
reached 67.5% of GDP in 2006, which is above the 60% of GDP Treaty
reference value. The programme projects the debt ratio to increase
to 71.25% of GDP in 2008. After 2008, it is expected to decrease
again and return to 67.5% in 2010. Overall, Hungary appears to
be at high risk with regard to the sustainability of public finances."
Malta — Council opinion on the updated convergence
programme, 2005-2009
"Real GDP growth is estimated to hover around 3% over
the programme period. For 2006, the general government deficit
is estimated at 2.9% of GDP in the Commission services' autumn
2006 forecast, against a target of 2.7% of GDP set in the previous
update of the convergence programme. The update foresees a gradual
reduction in the general government deficit leading to a broadly
balanced budget by 2009. Malta's 2006 deficit is below the reference
value (3% of GDP) but above the target set by the Council, and
the deficit is expected to stay just below 3% of GDP. Government
gross debt is estimated to have reached 68.25% of GDP in 2006,
above the 60% of GDP Treaty reference value. The programme projects
the debt ratio to decline by 8.75 percentage points of GDP over
the programme period. Overall, Malta appears to be at medium risk
with regard to the sustainability of public finances."
Poland — Council opinion on the updated convergence
programme, 2005-2009
"Real GDP growth increased from 3.2% in 2005 to over
5% in 2006 (5.8% according to the Polish Statistical Office).
The forecast is for maintaining a growth rate of around 5%. Poland
has been running government deficits that averaged 3.5% of GDP
over the 1996-2005 decade; this is estimated to have decreased
to 1.9% in 2006. This figure does not include the cost of pension
reform, of around 2% of GDP. This cost will have to be taken into
account from April 2007, when the transition period for implementing
the Eurostat decision of 2004 on sectoral classification of pensions
comes to an end. The deficit is planned to narrow by 0.4 percentage
points of GDP annually (0.3 percentage points if the pension reform
costs are included), from 1.9% of GDP in 2006 to 0.6% of GDP in
2009. Poland is currently still in the excessive deficit procedure
and the current Council view is that action taken by Poland is
inadequate for the correction of the excessive deficit in 2007.
In February 2007 the European Commission recommended further actions
for Poland to ensure the correction of the excessive deficit in
2007.[8] Government gross
debt is estimated to have reached 42.0% of GDP in 2006, well below
the 60% of GDP Treaty reference value. The programme projects
the debt ratio to decline by 1.4 percentage points over the programme
period. Including the impact of the above-mentioned Eurostat decision,
the government gross debt would rise from 48.9% in 2006 to 50.2%
in 2009. Overall, Poland appears to be at low risk with regard
to the sustainability of public finances."
Slovakia — Council opinion on the updated convergence
programme, 2005-2009
"Real GDP growth is expected to increase from 6.6% in
2006 to 7.1% in 2007 and then decrease to 5.5% and 5.1% in 2008
and 2009, respectively. For 2006, the general government deficit
is estimated at 3.4% of GDP in the Commission services' autumn
forecast, against a target of GDP set in the previous update of
the convergence programme. The headline deficit should gradually
decline from 3.7% of GDP in 2006 to 0.2% of GDP in 2009 and the
primary deficit from 1.9% of GDP in 2006 to 0.2% of GDP in 2009.
Slovakia is currently in the excessive deficit procedure and the
deficit is projected close to 3% in 2007.[9]
Government gross debt is estimated to have reached 33.1% of GDP
in 2006, well below the 60% of GDP Treaty reference value. The
programme projects the debt ratio to decline by 3.4 percentage
points over the programme period. Overall, Slovakia appears to
be at medium risk with regard to the sustainability of public
finances."
Sweden — Council opinion on the updated convergence
programme, 2005-2009
"Real GDP growth is estimated to slow from 4.0% in 2006
to 3.0% on average over the rest of the programme period. For
2006, the general government surplus is estimated at 2.8% of GDP
in the Commission services' autumn 2006 forecast, against a projected
outturn of 0.9% in the previous update of the convergence programme.
The budgetary strategy presented in the update foresees a decline
in the surplus in 2007 (from 3.0% of GDP in 2006 to 2.4%) and
thereafter projects a progressive recovery (to 3.1% in 2009).
Government gross debt is estimated to have fallen to 46.5% of
GDP in 2006, well below the 60% of GDP Treaty reference value.
The programme projects the debt ratio will continue following
a downward path, falling by 13.5 percentage points over the programme
period. Overall, Sweden appears to be at low risk with regard
to the sustainability of public finances."
United Kingdom — Council opinion on the updated convergence
programme, 2005-2009
"The programme envisages real GDP growth of 2.75% in
2007 and 2008, easing to 2.5% on average over the rest of the
programme period. For 2006/7, the general government deficit is
estimated at 3.0% of GDP in the Commission services' autumn 2006
forecast. The programme projects a reduction of the deficit below
3% of GDP by 2006/07 (2.8%) and to 1.4% of GDP by the end of the
projection period in 2011/12. The UK is currently in the excessive
deficit procedure.[10]
The gross debt ratio, which stood at 42.1% of GDP in 2005/06,
though remaining well below the Treaty reference value of 60%
of GDP, is projected to rise slowly over the projection period,
peaking at just above 44% of GDP in 2008/09. Thereafter, the ratio
is expected to stabilise and then begin to decline at the end
of the programme period. Overall, the UK appears to be at medium
risk with regard to the sustainability of public finances."
The Government's view
2.4 The Minister reminds us that the Government has consistently
supported 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
it agrees with the Council Opinions in these cases.
Conclusion
2.5 These documents show the working of the Stability and Growth
Pact in relation to the stability and convergence programmes of
Member States. And the documents and the Minister's summaries
also give a useful summary overview of the public finances of
these 20 Member States in the context of their overall economies
and implicitly of the Community's economy as a whole. We think
it would be useful to have the documents debated in European Standing
Committee, together with the Opinions for the remaining seven
Member States when we have been able to report on them, in order
to explore the operation of the Stability and Growth Pact and
Member States' actions in relation to it. Accordingly we recommend
such a debate.
3 This obligation does not apply to Member States,
including the UK, whilst they remain outside the eurozone, but
they are required to endeavour to avoid excessive deficits. Back
4
The 13 Member States (Austria, Belgium, Germany, Greece, Finland,
France, Ireland, Italy, Luxembourg, the Netherlands, Portugal,
Slovenia and Spain) that have adopted the euro have Stability
Programmes, whereas the other 14 Member States ( including the
UK) produce Convergence Programmes. Back
5
Unpublished. Back
6
The Opinion is based on a Commission draft which was outdated
on this point. In fact France is no longer in the excessive deficit
procedure: see paragraph 15 of this report on (28401) 5519/07. Back
7
(28004) 13530/06 (28005) 13763/06: see HC 41-iv (2006-07), para
17 (14 December 2006). Back
8
Not yet published. Back
9
(26272) 5053/05: see HC 38-ix (2004-05), para 10 (23 February
2005). Back
10
(28003) 13074: see HC 41-vi (2006-07), para 9 (17 January 2007). Back
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