24 Stability and Growth Pact: stability
and convergence programmes
| (a)
(30767) 11627/09—
(b) (30768) 11628/09 —
(c) (30769) 11629/09 —
(d) (30770) 11630/09 —
(e) (30771) 11631/09 —
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Council Opinion on the updated stability programme of Belgium, 2008-2013
Council Opinion on the updated stability programme of Austria, 2008-2013
Council Opinion on the updated stability programme of Slovenia, 2008-2011
Council Opinion on the updated stability programme of Slovakia, 2008-2011
Council Opinion on the updated convergence programme of Romania, 2008-2011 |
| Legal base | Articles 99(4) and 104 EC; —; simple majority
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| Documents originated | —
|
| Deposited in Parliament | 10 July 2009
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| Department | HM Treasury |
| Basis of consideration | EM of 20 July 2009
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| Previous Committee Report | None
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| Discussed in Council | 7 July 2009
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| Committee's assessment | Politically important
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| Committee's decision | Cleared
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Background
24.1 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%.[87]
Each year the Council of Economic and Finance Ministers (ECOFIN)
issues an Opinion on the updated stability or convergence programme
of each Member State.[88]
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.
24.2 On the other hand, the Pact also endorsed a
dissuasive or 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
24.3 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 spring 2009
economic forecast. (We reported on the Opinions for the other
22 Member States in June 2009.)[89]
A summary of the Council's comments for each of these Member States
is provided by the Financial Secretary to the Treasury (Mr Stephen
Timms) in his helpful Explanatory Memorandum, as follows:
Stability Programme of Belgium (2008-2013)
"The Programme projects that real GDP will fall
by 1.9% in 2009 before recovering to a 0.6% growth rate in 2010.
An average growth rate of around 2.25% is forecast for the rest
of the Programme period. In 2008 the general government deficit
amounted to 1.2% of GDP. The Programme targets a deficit in 2009
of 3.4% of GDP against the Commission Services forecast of 4.5%.
The Programme envisages the headline deficit increasing to 4%
in 2010 before declining to 1.5% by the end of the Programme period.
Government debt is estimated at 89.6% of GDP in 2008, which is
then projected to rise further to 95% in 2010, stabilising in
2011 and declining thereafter."
Stability Programme of Austria (2008-2013)
"The Austrian Stability Programme update envisages
that real GDP growth will fall from 1.8% in 2008 to -2.2% in 2009
before recovering to an average rate of 1.6% until the end of
the programme period. In 2008 the general government deficit of
0.4% of GDP was slightly lower than the target of 0.6% set in
the previous update of the Stability Programme. The current update
targets a general government deficit of 3.5% of GDP for 2009,
compared with a projected deficit of 4.2% of GDP in the Commission's
Spring Forecast. An increase in the deficit is foreseen in the
programme to 4.7% of GDP in 2010, remaining there until 2012,
then decreasing slightly to 3.9% in 2013. Starting from 62.5%
of GDP in 2008, the government gross debt ratio is projected to
increase by 16 percentage points until 2013."
Stability Programme of Slovenia (2008-2011)
"After expanding by 3.5% in 2008, real GDP is
forecast to contract by 4% in 2009 before recovering to positive
and increasing growth over the rest of the programme period. The
2008 general government deficit is estimated at 0.9% of GDP, in
line with the target set in the previous update of the Stability
Programme. The programme predicts that the general government
deficit will widen significantly in 2009 to 5.1% but then decline
to 3.9% in 2010 and 3.4% in 2011. This is against the Commission's
Spring Forecast of a deficit of 5.5% in 2009 and 6.5% in 2010.
The government gross debt ratio, estimated at 22.8% of GDP in
2008 is projected to increase by 13.5 percentage points over the
programme period."
Stability Programme of Slovakia (2008-2011)
"The Stability Programme envisages that real
GDP growth will fall from 6.4% in 2008 to 2.4% in 2009 before
recovering gradually to a rate of 4.5% by 2011. The Commission
Services forecast a contraction of 2.6% in 2009 and a modest recovery
of 0.7% in 2010. In 2008, the general government deficit amounted
to 2.2% of GDP, against a target of 2.3% in the previous update
of the Stability Programme. This is targeted to reach 3% of GDP
in 2009 and then narrow to 2.9% and 2.2% of GDP in 2010 and 2011,
respectively. The Commission Services' forecast demonstrates a
more marked increase in the deficit to 4.7% of GDP in 2009 and
5.4% in 2010. Gross government debt was 27.6% of GDP in 2008,
and is envisaged to gradually increase to 31.4% in 2009 and 32.7%
in 2010."
Convergence Programme of Romania (2008-2011)
"The Convergence Programme envisages that real
GDP will contract by 4% in 2009, followed by growth of 0.1% in
2010 and 2.4% in 2011, in line with the Commission's Spring Forecast.
The programme update estimates the deficit for 2008 at 5.4% of
GDP, against a target of 2.9% in the previous update. A deficit
target of 5.1% is set for 2009, which is in line with the Commission's
forecast. The update projects a gradual reduction to 4.1% in 2010,
against the Commission's forecast of 5.6%, and 2.9% in 2011. Government
gross debt stood at 13.6% of GDP in 2008 and is projected to increase
steeply to 22% in 2011."
The Government's view
24.4 The Minister, noting that the Council normally
adopts Stability and Growth Pact Opinions and Recommendations
on the basis of the budgetary plans of national governments as
set out in their updated stability and convergence programmes,
says that:
- this year the Opinions have
also included a discussion of the current exceptional circumstances
and whether Member States have implemented fiscal measures as
envisaged in the European Economic Recovery Plan, agreed by the
European Council on 11 December 2008;[90]
- the Government supports the plan, which calls
for a Community-wide fiscal stimulus of around 1.5% of EU GDP;
- the European Council has agreed that the flexibility
provided for in the Stability and Growth Pact should be used —
this is important, not only in allowing space for fiscal policy
to support the economy in the short term, but also in ensuring
an appropriate pace of consolidation over the medium term; and
- the Government believes that the consideration
of the current economic downturn in the Opinions, including adoption
of fiscal measures in line with those envisaged in the plan, is
consistent with a prudent interpretation of the Stability and
Growth Pact.
Conclusion
24.5 These documents, which we clear, give a useful
snapshot of the economies of the Member States concerned and as
such we draw them to the attention of the House.
87 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
88
The 16 Member States (Austria, Belgium, Cyprus, Germany, Greece,
Finland, France, Ireland, Italy, Luxembourg, Malta, the Netherlands,
Portugal, Slovakia, Slovenia and Spain) that have adopted the
euro have Stability Programmes, whereas the other 11 Member States
(including the UK) produce Convergence Programmes. Back
89
(30585)-(30606) 7308/09, 7310/09-7320/09, 7322/09-7330/09 and
8325/1/09: see HC 19-xviii (2008-09), chapter 25 (3 June 2009). Back
90
(30213) 16097/08): see HC 19-i (2008-09), chapter 4 (10 December
2008) and HC Deb, 20 January 2009, cols 626-49. Back
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