2 Stability and Convergence Programmes
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(28496)
7863/07
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(b)
(28497)
7864/07
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(c)
(28498)
7865/07
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(d)
(28499)
7866/07
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(e)
(28500)
7867/07
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Council Opinion on the updated Stability Programme of Belgium
Council Opinion on the updated Stability Programme of Spain
Council Opinion on the updated Convergence Programme of Bulgaria
Council Opinion on the updated Convergence Programme of Latvia
Council Opinion on the Convergence Programme of Romania
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| Legal base | Articles 99(4) and 104 EC; —; QMV
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| Deposited in Parliament | 2 April 2007
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| Department | HM Treasury |
| Basis of consideration | EM of 3 April 2007
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| Previous Committee Report | None
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| Discussed in Council | Adopted by the ECOFIN Council on 27 March 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%.[4]
Each year the Council of Economic and Finance Ministers (ECOFIN)
issues an Opinion on the updated stability or convergence programme
of each Member State.[5]
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 five Member States, which are assessed
in relation to the Commission's autumn 2006 economic forecasts.
(We have already reported on the stability or convergence programmes
of 20 Member States[6]
and expect to report on the remaining two 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 (Ed Balls) in his helpful
Explanatory Memorandum, as follows:
Belgium — Council opinion on the updated stability
programme, 2006-2010
"Real GDP growth is estimated to decrease from 2.7% in
2006 to 2.2% on average over the rest of the programme period.
The current update of the stability programme is based on the
assumption of a balanced budget in 2006. This assumption seems
to be broadly confirmed by most recent data, whereas the Commission
services' autumn forecast had projected a deficit of 0.2% of GDP.
The main goal of the medium-term budgetary strategy in the programme
is to ensure a continuous reduction of the still high debt ratio
(close to 90% in 2006) to below 75% of GDP in 2010, through a
gradual build-up of nominal budgetary surpluses (from 0.3% of
GDP in 2007 to 0.9% in 2010), to prepare for the ageing shock
ahead. The Commission services' estimate of the government gross
debt is 89.4% of GDP in 2006, which is still far above the 60%
of GDP Treaty reference value, although substantially decreasing
over the last several years. The programme projects the debt ratio
to rapidly decline by around 15 percentage points over the programme
period. Overall, Belgium appears to be at medium risk with regard
to the sustainability of public finances."
Spain — Council opinion on the updated stability
programme, 2006-2009
"Real GDP growth is expected to decrease from 3.8% in
2006 to 3.3% on average over the rest of the programme period.
For 2006, the Commission services' autumn 2006 forecast estimated
the general government surplus at 1.5% of GDP, fully in line with
the updated stability programme, but against a target of 0.9%
of GDP set in the previous update of the stability programme.
The general government surplus is envisaged to decline from 1.4%
of GDP in 2006 to about 1% in 2009. Government gross debt is estimated
to have declined below 40% of GDP in 2006, well below the 60%
of GDP Treaty reference value. The update projects the debt ratio
to further decline by 8 percentage points over the programme period.
Overall, Spain appears to be at medium risk with regard to the
sustainability of public finances."
Bulgaria — Council opinion on the convergence programme,
2006-2009
"Real GDP growth is expected to remain at a high level,
slightly increasing from 5.9% in 2006 to 6.1% on average over
the rest of the programme period. For 2006, the general government
surplus is estimated at 3.3% of GDP in the Commission services'
autumn 2006 forecast, against a target of a balanced budget set
in the December 2005 pre-accession economic programme (PEP) and
a projected surplus of 3.2% of GDP in the Convergence Programme.
The medium-term budgetary strategy laid down in the convergence
programme aims at maintaining a general government surplus in
the range of 0.8-1.5% of GDP in order to safeguard macroeconomic
stability and sustainability of public finances. A strong fiscal
loosening is projected in 2007, with the budgetary surplus attaining
0.8% of GDP, down from 3.2% of GDP in 2006. In 2008 and 2009,
the general government surplus would rise again and stabilise
at 1.5% of GDP. Government gross debt is estimated to have reached
25.25% of GDP in 2006, well below the 60% [of] GDP Treaty reference
value. The programme projects the debt ratio to decline by 4 percentage
points over the programme period. The initial budgetary position,
with a large structural surplus, contributes significantly to
stabilise debt before considering the long-term budgetary impact
of ageing. Maintaining high primary surpluses over the medium
term would contribute to containing risks to the sustainability
of public finances."
Latvia — Council opinion on the updated convergence
programme, 2006-2009
"The programme envisages a soft-landing of the economy,
with real GDP growth slowing from 11.5% in 2006 to 8.0% on average
over the rest of the programme period. For 2006, the Commission
services' autumn 2006 forecast estimated the general government
deficit at 1.0% of GDP, against a target of 1.5% of GDP set in
the previous update of the convergence programme. The main goal
of the medium-term budgetary strategy is to gradually improve
the fiscal outlook and achieve a balanced budget by 2010. Government
gross debt is estimated to have reached 10.7% of GDP in 2006,
well below the 60% of GDP Treaty reference value. The programme
projects the debt ratio to decline by 1.3 percentage points over
the programme period to reach 9.4% of GDP by 2009. Overall, Latvia
appears to be at low risk with regard to the sustainability of
public finances."
Romania — Council opinion on the convergence programme,
2006- 2009
"Real GDP growth is expected to decelerate progressively
from a well-above potential rate of 8% in 2006 to a still sustained
5.9% in 2009. For 2006, the Commission services' autumn 2006 forecast
estimated the general government deficit at 1.4% of GDP against
a target set in the pre-accession economic programme of 0.7% of
GDP. The convergence programme targets a small reduction of the
general government deficit from 2.3% of GDP in 2006 to 2% of GDP
in 2009, after a rise to 2.7% of GDP in 2007. Government gross
debt is estimated to have reached around 13% of GDP in 2006, well
below the 60% of GDP Treaty reference value. The programme projects
the debt ratio to decline by around 1 percentage point of GDP
over the programme period. The initial budgetary position, with
a large structural deficit, is not sufficient to stabilise debt
even before considering the long-term budgetary impact of ageing.
Improving the structural budgetary position over the medium term
would contribute to containing risks to the sustainability of
public finances."
The Government's view
2.4 The Minister reminds us again 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 When we reported on the earlier batch of updated stability
and convergence programmes we said that we were recommending that
these documents, once all 27 had been received, should be debated
in European Standing Committee in order to explore the operation
of the Stability and Growth Pact and Member States' actions in
relation to it. Accordingly we recommend these present documents
for such a debate.
4 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
5
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
6
(28419)-(28438) 6801/07-6823/07: see HC 41-xvii (2006-07), para
2 (18 April 2007). Back
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