12 Stability and Growth Pact: excessive
deficit procedure
| (a)
(31826)
11292/10
—
(b)
(31827)
11296/10
—
(c)
(31828)
11300/10
—
(d)
(31829)
11301/10
—
(e)
(31830)
11304/10
—
(f)
(31831)
11305/10
—
(g)
(31832)
11306/10
—
(h)
(31835)
11307/10
—
|
Council Decision on the existence of an excessive deficit in Cyprus
Council Recommendation to Cyprus with a view to bringing an end to the situation of an excessive government deficit
Council Decision on the existence of an excessive deficit in Denmark
Council Recommendation to Denmark with a view to bringing an end to the situation of an excessive government deficit
Council Decision on the existence of an excessive deficit in Finland
Council Recommendation to Finland with a view to bringing an end to the situation of an excessive government deficit
Council Decision on the existence of an excessive deficit in Bulgaria
Council Recommendation to Bulgaria with a view to bringing an end to the situation of an excessive government deficit
|
| Legal base | (a), (c), (e) and (g) (i) Article 126(6) TFEU; —; QMV, with the Member State concerned not voting
(b), (d), (f) and (h) Article 126(7) TFEU; —; QMV, with the Member State concerned not voting
|
| Deposited in Parliament | (a)-(g) 26 July 2010
(h) 20 July 2010
|
| Department | HM Treasury
|
| Basis of consideration | EM of 27 October 2010
|
| Previous Committee Report | None
|
| Discussed in Council | 13 July 2010
|
| Committee's assessment | Politically important
|
| Committee's decision | Cleared
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Background
12.1 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%.[34]
Each year the Council of Economic and Finance Ministers (ECOFIN)
issues an Opinion on the updated stability or convergence programme
of each Member State.[35]
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.
12.2 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 126 TFEU 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
12.3 On 13 July 2010 the ECOFIN Council adopted Decisions
and Recommendations for four Member States saying that they had
excessive deficits, that is, putting them into the excessive deficit
procedure, and adopted Recommendations for them as to how they
might rectify these excessive deficits. The Decisions were taken
on the basis that, although according to Council Regulation 1467/97,
"relevant factors" can be taken into account if the
deficit remains close to the reference value and is temporary,
this double condition was not deemed to exist in these cases.
12.4 In relation to Cyprus the Council adopted a
Decision and a Recommendation, documents (a) and (b). In the Decision
the Council noted that:
- according to the Cypriot Government,
the deficit reached 6.1% of GDP in 2009, which not only exceeds
the 3% reference value but was also considered an exceptional
breach;
- the Commission's spring forecast predicts that
the budgetary deficit will reach around 7.75% in 2011, as current
policies stand;
- the Commission also predicts that real GDP will
continue to shrink, by almost 0.5% in 2010 — the deficit
criterion in the Treaty is therefore not fulfilled;
- the Cypriot Government has also reported that
the general gross debt remains below 60% of GDP reference value,
at 56.2%;
- however, the Commission's spring forecast envisages
a rise in debt to 62.3% of GDP in 2010, followed by 67.6% in 2011;
and
- in view of this trend, the debt ratio cannot
be considered to be diminishing and, consequently, the Council
believes that the debt criterion in the Treaty is not fulfilled.
12.5 In the Recommendation the Council said Cyprus
should:
- put an end to the present excessive
deficit procedure situation as rapidly as possible and by 2012
at the latest, most importantly by taking measures to reduce the
2010 deficit to no more than 6% of GDP;
- ensure an average annual fiscal effort of at
least 1.5 % of GDP over the period 2011-2012;
- specify and rigorously implement the measures
that will put an end to the excessive deficit by 2012 and, if
economic or budgetary conditions turn out better than expected,
it should accelerate the reduction;
- strengthen the binding nature of its medium-term
budgetary framework and improve the monitoring of the budget execution
throughout the year;
- improve the long-term sustainability of public
finances by implementing reform measures to control pension and
health care expenditure;
- seize opportunities beyond the fiscal effort
to accelerate the reduction of the gross debt ratio back towards
the reference value; and
- meet a deadline of 13 January 2011 to take effective
action and to specify measures that will be necessary to correct
the excessive deficit.
12.6 In relation to Denmark the Council adopted a
Decision and a Recommendation, documents (c) and (d). In the Decision
the Council noted that:
- according to the Danish Government
its general deficit is planned to reach 5.4% of GDP in 2010, which
not only exceeds the 3% reference value but was also considered
an exceptional breach;
- as the Commission's spring 2010 forecast predicts
that the deficit would decline to 4.9% in 2011, the breach cannot
be considered a temporary event — the deficit criterion
in the Treaty is therefore not fulfilled;
- Denmark also notified the Commission that the
general gross debt remains at 45.1% and below the reference value;
and
- although this is predicted to rise to 49.5% in
2011, it is still below the 60% of GDP level — therefore
the debt criterion in the Treaty is fulfilled.
12.7 In the Recommendation the Council said Denmark
should:
- put an end to the present excessive
deficit procedure situation at the latest by 2013, most importantly
by implementing the fiscal measures in 2010 as envisaged in the
latest update of the convergence programme and start consolidation
in 2011;
- ensure an average annual fiscal effort of at
least 0.5 % of GDP over the period 2011-2013;
- specify and rigorously implement the measures
that will put an end to the excessive deficit by 2012 and, if
economic or budgetary conditions turn out better than expected,
it should accelerate the reduction;
- achieve the medium-term objective for appropriate
budgetary management of economic downturns;
- ensure that budgetary consolidation towards the
medium-term objective for the budgetary position, a structural
balanced budget by 2015, is sustained after the excessive deficit
has been corrected; and
- meet a deadline of 13 January 2011 to take effective
action and to specify measures that will be necessary to correct
the excessive deficit.
12.8 In relation to Finland the Council adopted a
Decision and a Recommendation, documents (e) and (f). In the Decision
the Council noted that:
- according to the Finnish Government
the general government deficit is planned to reach 4.1% of GDP
in 2010, which not only exceeds the 3% reference value but was
also considered an exceptional breach;
- due to the third supplementary budget presented
by the Ministry of Finance suggesting that tax revenues in 2010
could turn out higher than planned, the Commission's spring forecast
predicts that the deficit will fall below the reference value
in 2011;
- the planned excess over the reference value can
therefore be considered temporary — however, the deficit
criterion in the Treaty is not fulfilled;
- Finland notified the Commission that the gross
debt remains below the 60% reference value, at 49.9% in 2010;
and
- although the Commission's spring forecast estimates
that this will rise to 54.9% in 2011, it will remain below 60%
— therefore the debt criterion in the Treaty is fulfilled.
12.9 In the Recommendation the Council said Finland
should:
- put an end to the present excessive
deficit procedure situation at the latest by 2011, most importantly
by implementing the fiscal measures in 2010 as envisaged in the
latest update of the convergence programme;
- ensure that the planned breach of the 3% of GDP
reference value would remain contained and temporary;
- specify its planned measures and ensure a fiscal
effort of at least 0.5% of GDP in 2011;
- needs to achieve the medium-term objective for
appropriate budgetary management of economic downturns and also
with a view of restoring the long-term sustainability of public
finances;
- ensure that budgetary consolidation towards the
medium-term objective for the budgetary position, a structural
surplus of 0.5% of GDP, is sustained after the excessive deficit
has been corrected; and
- meet a deadline of 13 January 2011 to take effective
action and to specify measures that will be necessary to correct
the excessive deficit.
12.10 In relation to Bulgaria the Council adopted
a Decision and a Recommendation, documents (g) and (h). In the
Decision the Council noted that:
- the general government deficit
in Bulgaria reached 3.9% of GDP in 2009, which not only exceeds
the 3% reference value but was considered an exceptional breach;
- despite the initial Spring 2010 forecast predicting
that the deficit would fall below 3%, on the basis of the revised
deficit target for 2010, 3.8% of GDP according to the Bulgarian
government, the breach of the reference value may not remain temporary
— the deficit criterion in the Treaty is therefore not fulfilled;
- Bulgaria notified the Commission that the government
gross debt remains well below the 60% of GDP reference value and
this remains the case for projected forecasts also — therefore
the debt criterion in the Treaty is fulfilled.
12.11 In the Recommendation the Council said Bulgaria
should:
- correct the excessive deficit
procedure by the end of 2011 at the latest, most importantly by
taking measures to avoid further deterioration of the 2010 budget
deficit beyond the anticipated 3.8% of GDP;
- limit risk through improved fiscal transparency,
by reinforcing spending controls, strengthening its medium-term
budgetary framework and improving the monitoring of budget execution;
- needs to achieve the medium-term objective for
appropriate budgetary management of economic downturns;
- ensure that budgetary consolidation towards the
medium-term objective for the budgetary position, a general government
structural balance of 0.5% of GDP, is sustained after the excessive
deficit has been corrected; and
- meet a deadline of 13 January 2011 to take effective
action and to specify measures that will be necessary to correct
the excessive deficit.
The Government's view
12.12 The Financial Secretary to the Treasury (Mr
Mark Hoban) says that the Government believes that Member States
should take forward fiscal consolidation as a priority to reduce
their deficits and support recovery.
Conclusion
12.13 Whilst clearing these documents we draw
them to the attention of the House for the information they give
about the present fiscal situation of the Member States concerned.
And in view of concerns over the accuracy in some cases of the
information supplied on deficits, we are drawing the Treasury
Committee's attention to this Report chapter.
34 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
35
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
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