10 Stability and Growth Pact
| (a)
(32338)
17753/10
COM(10) 739
(b)
(32339)
17752/10
COM(10) 740
|
Commission Communication: Follow-up to the Council Decision 2010/320/EU addressed to Greece, with a view to reinforcing and deepening fiscal surveillance and giving notice to Greece to take measures for the deficit reduction judged necessary to remedy the situation of excessive deficit
Recommendation for a Council Decision amending for a second time Decision 2010/320/EU addressed to Greece with a view to reinforcing and deepening fiscal surveillance and giving notice to Greece to take measures for the deficit reduction judged necessary to remedy the situation of excessive deficit
|
| Legal base | (a) —
(b) Articles 126(9) and 136 TFEU; —; QMV of eurozone Member States
|
| Documents originated | 9 December 2010
|
| Deposited in Parliament | 15 December 2010
|
| Department | HM Treasury
|
| Basis of consideration | EM of 16 February 2011
|
| Previous Committee Report | None
|
| Discussed in Council | 20 December 2011
|
| Committee's assessment | Politically important
|
| Committee's decision | Cleared
|
Background
10.1 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%.[47]
Each year the Council of Economic and Finance Ministers (ECOFIN)
issues an Opinion on the updated stability or convergence programme
of each Member State.[48]
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.
10.2 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 (formerly 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.
10.3 On 10 May 2010 a Council Decision was addressed
to Greece with a view to:
- reinforcing and deepening Commission
surveillance of Greece; and
- setting out the measures that Greece would need
to take to end the present excessive deficit situation "as
rapidly as possible, at the latest, by the deadline of 2014"
and to comply with the conditionality for the granting of the
joint eurozone/IMF package of support.[49]
10.4 On 7 September 2010, following an assessment
of Greece's response, the Council addressed a further Decision
to Greece amending the May 2010 Decision. The main amendments
were:
- revision of fiscal consolidation
targets as a percentage of GDP to take into account higher than
forecast nominal GDP growth (consolidation target levels were
unchanged);
- removal of approval of pension reform legislation
from the conditions, reflecting the fact that the Greek parliament
had approved pension reform ahead of the programme's schedule
— in its place were introduced a small number of detailed
actions related to pension reform implementation that were still
outstanding; and
- specification of more detailed measures for some
conditions relating to structural reform (in particular the health
services, railway operators and a review of central administration).[50]
The documents
10.5 In its Communication, document (a), the Commission
assesses the progress made by Greece in implementing the measures
set out by the May 2010 Council Decision. The assessment is based
on a report submitted by the Greek government, in accordance with
the requirements set by the Council Decision and on a review carried
out in conjunction with the IMF and the European Central Bank.
The Commission:
- outlines, as background, Greece's
fiscal consolidation plans — the target is for the general
government budget deficit to progressively reduce from 15.4% of
GDP in 2009, reaching 2.6% of GDP by 2014;
- identifies some issues with budget implementation
— total state revenues increased by 3.4% from January to
September 2010 (against a target of 15.6% for the year as a whole),
while cash outflows contracted by 9.2% (against a target of 7.6%
for the year as a whole) and the government may also partially
deliver on its commitment to under-execute spending to offset
slippages in social security and local government expenditure;
- forecasts the deficit calculated according to
ESA95[51] standards for
2010 to be around 1.75% of GDP above the original programme target
— this reflects the materialisation of risks identified
in the previous, September 2010, in particular around one third
of this deviation can be attributed to the revision of Greek fiscal
statistics;
- expects the increase in government debt to remain
within the original ceiling set by the programme;
- notes the continued commitment of the Greek government
to the programme and its intention to implement additional measures
in 2011 to compensate for slippage in 2010 — the 2011 budget
includes new measures worth 2.5% of GDP, including cuts in untargeted
spending, a reduction in short-term contracts in the public sector,
targeting of household subsidies and better management of state
assets;
- identifies measures to tackle structural problems
in health expenditure and the management of state owned enterprises
that have been included in the 2011 budget — further detailed
measures will need to be specified to meet the 2012-2014 consolidation
targets;
- says progress continues to be made on structural
reforms, although at a slower pace than before the summer of 2010
— in particular, there has been progress on structural fiscal
reform and the first stage of pension reform was adopted;
- calls for more ambition on privatisation plans,
but welcomes the government's commitment to use privatisation
proceeds to redeem debt;
- says the report and other data submitted to the
Commission included most of the information and data required
by the May 2010 Council Decision — in addition it contained
detailed information on implementation of structural reform;
- sets out, however, areas where data provision
is still incomplete; and
- that, despite the expectation that it will miss
one of its 2010 targets and a slower pace in the adoption of reform,
Greece is satisfactorily complying with the conditions set by
the May 2010 Council Decision.
10.6 Commission reviews are conducted quarterly and
the third review is expected to take place in the spring of 2011.
10.7 The Commission's Recommendation for a Council
Decision, document (b), summarises its conclusions on how Greece
is complying with conditionality, as covered in the Communication,
document (a), and outlines developments in Greece since the adoption
of the May 2010 Council Decision. In particular, the Commission:
- outlines data revisions resulting
from the Eurostat validation of Greek government deficit and debt
statistics; and
- details some amendments to programme conditionality,
to reflect additional measures required to offset some slippage
against 2010 targets — these do not constitute a reduction
in the adjustment's programme level of ambition.
10.8 The main amendments to the May 2010 Council
Decision, as amended in September 2010, are:
- debt-to-GDP ratio targets are
modified to take into account the revisions to past data;
- additional fiscal consolidation measures for
2011 are listed; and
- more detailed measures are specified for some
conditions relating to structural reform and reform of the public
administration (in particular the health services, state owned
enterprises and procurement).
The Government's view
10.9 The Financial Secretary to the Treasury (Mr
Mark Hoban) says that the Commission Communication does not have
any direct policy implications for the UK. However the Government
will be monitoring the situation closely as this issue is of importance
to all Member States. The Minister says that the Government broadly
agrees with the Commission's assessment and that Greece's compliance
with its adjustment programme is subject to separate scrutiny
from the IMF Board.
10.10 The Minister also says that there are no direct
financial implications for the UK arising from the Council Decision.
But he adds that:
- on 10 May 2010 the General
Affairs Council took note of the conclusions of the Member States,
adopted on 5 May 2010, that "Member States whose currency
is the euro have decided to provide stability support to Greece
in an intergovernmental framework via pooled bilateral loans.
The EU Member States entrust the Commission with the tasks in
relation to the coordination and management of the stability support
set out in an inter-creditor agreement to be concluded by the
euro area Member States providing the support." As the UK
is not in the eurozone there are no financial implications arising
from these loans to the UK;
- the IMF will follow normal procedures in financing
its stand-by arrangement with Greece — the IMF borrows resources
from its members to finance its ongoing lending operations, contributions
are drawn widely across members' "quota subscriptions"
to the IMF as well as through bilateral loans and the UK participates
in these arrangements along with other IMF members;
- UK loans to the IMF are held as part of the Official
Reserves and do not add to public sector net debt as they are
treated as financial assets;
- there are a number of safeguards to protect UK
contributions to the IMF — these include the conditions
attached to IMF programmes, the IMF's provision of support through
instalments and the IMF's status as a preferred creditor;
- in parallel to the assistance being provided
to Greece, on 9 May 2010 the ECOFIN Council agreed a European
Financial Stabilisation Mechanism to support Member States in
need, up to the level of €60 billion (£49.10 billon);[52]
- should the mechanism be called upon the Commission
would raise the money on capital markets — loans would be
granted in parallel with IMF programmes and would be subject to
policy conditionality, the EU budget would be used to guarantee
the loans and only where there were defaults on loan repayments
would there be a cost to the EU budget;
- Member States would be liable for a share through
their monthly subscriptions to the EU budget — based on
the UK's contribution to the 2010 EU Budget, the UK's share would
be approximately 13.8% of any increase, or up to a maximum of
around €8 billion (around £6.5 billion);
- eurozone Member States also agreed up to €440
billion (£359.70 billon) to complement the mechanism through
a Special Purpose Vehicle — a voluntary intergovernmental
agreement of eurozone Member States, lasting three years, which
has no bearing on the EU budget;
- the Government has chosen not to participate
in the Special Purpose Vehicle and will not make contributions
— there is therefore no question of any liability arising
to the UK; and
- neither the European Financial Stabilisation
Mechanism nor the Special Purpose Vehicle provided assistance
to Greece.
Conclusion
10.11 We are grateful to the Minister for the
information he gives us about the latest developments in relation
to Greece's fiscal situation and clear the documents from scrutiny.
47 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
48
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
49
(31615) 9443/10: see HC 428-i (2010-11), chapter 69 (8 September
2010) and (31611) 9606/10 (31796) 12119/10: see HC 428-i (2010-11),
chapter 7 (8 September 2010). Back
50
(31896) 12936/10 (31897) 12937/10: see HC 428-v (2010-11), chapter
13 (27 October 2010). Back
51
The European System of National and Regional Accounts, see: http://circa.europa.eu/irc/dsis/nfaccount/info/data/esa95/en/titelen.htm.
Back
52
Ibid. Back
|
