21 STABILITY AND CONVERGENCE
PROGRAMMES
(a)
(28784)
11710/07
—
(b)
(28785)
11711/07
—
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Council Opinion on the updated Stability Programme of Austria
Council Opinion on the updated Convergence Programme of the Czech Republic
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| Legal base | Articles 99(4) and 104 EC; —; QMV
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| Deposited in Parliament |
16 July 2007 |
| Department | HM Treasury
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| Basis of consideration |
EM of 7 August 2007 |
| Previous Committee Report |
None |
| Discussed in Council | Adopted by ECOFIN Council on 10 July 2007
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| Committee's assessment | Politically important
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| Committee's decision | Cleared
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Background
21.1 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%.[86]
Each year the Council of Economic and Finance Ministers (ECOFIN)
issues an Opinion on the updated stability or convergence programme
of each Member State.[87]
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.
21.2 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.
21.3 Earlier this year we recommended the latest
stability or convergence programmes of 25 Member States for debate
in European Standing Committee. In June 2007 we recommended that
the debate should not wait any longer on our receipt and consideration
of the programmes of Austria and the Czech Republic. The debate
therefore took place on 16 July 2007.[88]
The documents
21.4 These documents now provide the Council's Opinion
on the stability programme for Austria and the convergence programme
for the Czech Republic, 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 (Kitty Ussher) in her
helpful Explanatory Memorandum, as follows:
Austria — Council Opinion on the updated
stability programme, 2006-2010
"Real GDP growth is expected to decelerate from
a cyclical peak of 3.1% in 2006 to 2.5% on average over the rest
of the programme period. For 2006, the general government deficit
amounted to 1.1% of GDP, against a target of 1.7% of GDP set in
the previous update of the stability programme. The main goal
of the budgetary strategy is to reach a balanced budget over the
cycle, reaping the benefits of administrative reform while reinforcing
expenditure in several categories. The general government position
is projected to improve from a deficit of 1.1% of GDP in 2006
to a surplus of 0.4% in 2010. Government gross debt is estimated
to have declined to 62.2% of GDP in 2006, still being above the
60% Treaty reference value. The programme projects the debt ratio
to fall below the reference value by 2008 and to decline further
to 56.8% of GDP by the final year of the programme period. Overall,
Austria appears to be at low risk with regard to the sustainability
of public finances."
Czech Republic — Council Opinion on the
updated convergence programme, 2006-2009
"Real GDP growth is expected to decrease from
6.1 % in 2006 to 4.9% in 2007 and broadly stabilise thereafter.
For 2006, the general government deficit is estimated at 2.9%
of GDP in the Commission services' spring 2007 forecast, against
a target of 3.8% of GDP set in the previous update of the convergence
programme. The main goal of the programme's medium-term budgetary
strategy is to achieve long term sustainability of public finances,
notably by making progress towards the medium term objective (MTO)
for the budgetary position of a structural deficit of 1% of GDP.
The new programme postpones the planned reduction of the deficit
below the 3% of GDP reference value by at least two years against
a more favourable macroeconomic scenario. Government gross debt
is estimated to be at 30.4% of GDP in 2006, well below the 60%
of GDP Treaty reference value. The programme projects the debt
ratio to increase by almost 2 percentage points over the programme
period. Overall, the Czech Republic appears to be at high risk
with regard to the sustainability of public finances."
The Government's view
21.5 The Minister says, in familiar terms, that the
Government 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 and that it agrees with the Council Opinions
in these cases.
Conclusion
21.6 This series of 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 Member States in the context of their
overall economies and implicitly of the Community's economy as
a whole.
21.7 If these particular Opinions had been adopted
sooner by the Council they would have been include in the debate
of 16 July 2007 mentioned above. As it is we now clear both documents.
86 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
87
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
88
(28419)-(28438) 6801/07-6823/07 and (28496)-(28500) 7863/07-7867/07:
see HC 41-xvii (2006-07), para 2 (18 April 2007), HC 41-xviii
(2006-07), para 2 (25 April 2007), HC 41-xxiii (2006-07), para
4 (6 June 2007) and Stg Co Deb, European Standing Committee,
16 July 2007, cols 3-16.
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