15 Stability and Growth Pact
| (a)
(28235)
15507/06
—
(b)
(28401)
5519/07
—
|
Council Decision establishing, in accordance with Article 104(8), that the action taken by Poland in response to the Recommendation of the Council in accordance with Article 104(7) of the Treaty establishing the European Community is proving to be inadequate
Council Decision abrogating Decision 2003/487/EC on the existence of an excessive deficit in France
|
| Legal base | Article 104 EC; —; QMV
|
| Deposited in Parliament | (a) 12 January 2007
(b) 23 February 2007
|
| Department | HM Treasury |
| Basis of consideration | (a) EM of 22 January 2007
(b) EM of 26 March 2007
|
| Previous Committee Report | None
|
| Discussed in Council | (a) 28 November 2006
(b) 29 January 2007
|
| Committee's assessment | Politically important
|
| Committee's decision | Cleared, but relevant to a debate on the 2007 Council Opinions on the stability or convergence programmes of Member States
|
Background
15.1 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%.[44]
The Pact also endorsed 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 the Council of Economic and Finance Ministers (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
15.2 The Decision in document (a) concerns the excessive deficit
procedure in relation to Poland. In July 2004 ECOFIN adopted a
Decision that an excessive deficit existed and a Recommendation
for Poland to bring an end to this excessive deficit as soon as
possible and by 2007 at the latest. A Commission Communication
of December 2004 recorded the action taken by Poland in response
to the Recommendation.[45]
15.3 Although the Polish deficit has declined continuously since
2003, this has not been enough to bring the deficit, including
pension reform costs, below the required 3% reference value. So
in the present Decision ECOFIN has decided that action taken by
Poland in response to the 2004 Recommendation is proving to be
inadequate to correct the excessive deficit. However, as Poland
it is not a member of the eurozone this is effectively the end
of the present procedure.
15.4 The Decision in document (b) concerns the excessive deficit
procedure in relation to France. in June 2003 ECOFIN adopted a
Decision that an excessive deficit existed and a Recommendation
for France to bring an end to this excessive deficit as soon as
possible and by 2004 at the latest. Another Commission Communication
of December 2004 concerned the situation in relation to France
and the excessive deficit procedure following a European Court
of Justice ruling and in January 2005 ECOFIN in consequence determined
that France's actions were broadly consistent with a correction
of the excessive deficit by 2005 but that the Commission would
continue to monitor compliance with France's commitments in this
regard.[46] In the present
Decision ECOFIN has decided that the excessive deficit has been
corrected and the 2003 Decision on the existence of an excessive
deficit is abrogated.
The Government's view
15.5 The Economic Secretary to the Treasury (Ed Balls) says in
relation to both documents that the Government has consistently
voiced support for 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
Government agrees with both Decisions.
Conclusion
15.6 We clear these documents. But we draw them to attention
of the House because they both give background information on
the economies of these two Member States and show some of the
workings of the Stability and Growth Pact. Additionally we note
that they are relevant to the debate we are recommending on this
year's Council Opinions on the stability and convergence programmes
of Member States.[47]
44
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
45
(28378) 11220/04 and (28394) 14575/04: see HC 41-xvi (2006-07),
para 13 (28 March 2007) and (26272) 5053/05: see HC 38-ix (2004-05),
para 10 (23 February 2005). Back
46
(28387) 10050/03 and (28388) 10125/04: see HC 41-xvi (2006-07),
para 13 (28 March 2007) and (26248) 16310/04: see HC 38-ix (2004-05),
para 10 (23 February 2005). Back
47
See paragraph 2 of this report. Back
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