12 Stability and Growth Pact
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7001/11
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COM(11) 85
(b)
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6754/11
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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
Council Decision amending 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
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| Legal base | (a) —
(b) Articles 126(9) and 136 TFEU; —; QMV of eurozone Member States
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| Document originated | (a) 24 February 2011
(b) —
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| Deposited in Parliament | (a) 8 March 2011
(b) 22 March 2011
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| Department | HM Treasury
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| Basis of consideration | EM of 30 March 2011
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| Previous Committee Report | None
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| Discussion in Council | 7 March 2011
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| Committee's assessment | Politically important
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| 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%.[44] Each year
the Council of Economic and Finance Ministers (ECOFIN) issues
an Opinion on the updated stability or convergence programme of
each Member State.[45]
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.
12.3 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.[46]
12.4 In September and December 2010, following
assessments by the Commission of Greece's response, the Council
addressed two further Decisions to Greece amending the May 2010
Decision. The main amendments were:
- modification of debt-to-GDP
ratio targets to take into account the revisions to past data;
- 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;
- listing of additional fiscal consolidation measures
for 2011; and
- specification of more detailed measures for some
conditions relating to structural reform and reform of the public
administration (in particular the health services, state owned
enterprises and procurement).[47]
The documents
12.5 In its Communication, document (a), the
Commission presents its third assessment of the progress made
by Greece in implementing the measures set out by the May 2010
Council Decision. The accompanying Commission Staff Working Paper
provides the analytical detail to support the findings. 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:
- identifies some issues with
the 2010 budget implementation;
- says that the government deficit[48]
ceiling for 2010 is estimated to have been missed by around €4.1
billion (£3.5 billion) and to have amounted to 9.6% of GDP
as opposed to the 8% target;
- points out, however, that this amounts to a reduction
in the deficit of almost 6% points compared to 2009;
- says that the debt ratio for Greece increased
from 127% of GDP at the end of 2009 to 141% in 2010;
- comments that the increase in government debt
has, however, remained within the ceiling established in the May
2010 Council Decision (ceiling — €34.058 billion (£28.05
billion), estimated outcome — €28.87 billion (£24.62
billion));
- reports that, for 2011, the Greek government
has confirmed its commitment to meet the fiscal target for 2011;
- highlights that, as a result of a higher-than-expected
deficit and debt levels and lower-than-expected GDP, larger consolidation
efforts are necessary;
- says that the Greek government has, however,
committed to fully recoup the ground lost in 2010 in order to
restore a sustainable fiscal position;
- says that the 2011 Greek budget contains new
deficit reduction measures worth 2.25% of GDP, bringing total
fiscal consolidation measures in 2011 to 5.75% cent of GDP —
two thirds of the measures agreed in November 2010 are on the
expenditure side, most are of a structural nature, with temporary
measures worth 0.3% of GDP;
- notes that the 2011 budget will start to tackle
two key structural problems — excessive health spending
and losses by state-owned enterprises;
- says that, in order to achieve the 2011 budgetary
targets, tax revenues will, however, have to increase by €1.5
billion (£1.28 billion);
- believes that this will be challenging and will
depend on Greece achieving concrete results from combating tax
evasion and the efficiency of collection;
- lists areas of the structural reform agenda that
are being implemented (although in some cases slower than planned),
for example, strengthening the legislative framework to fight
tax evasion and tax administration;
- says budgetary institution reforms are progressing
and progress has been made on healthcare reform;
- explains that certain measures have, however,
been delayed, including the simplification of public sector remuneration;
- says the Greek government has committed itself
to publishing an inventory of state-owned assets, including stakes
in listed and non-listed enterprises and commercially viable real
estate and land;
- believes privatisation will yield €50 billion
(£42.6 billion) in 2011-15, with €15 billion (£12.8
billion) of this in 2011-12;
- highlights that the Greek government will prepare
a medium-term fiscal strategy for 2012-15 in accordance with Greek
budget law, with a view to reducing the general government deficit
below 3% of GDP by 2014; and
- estimates that the fiscal gap between a baseline
no-policy scenario and the 2011 target set by the Council currently
stands at 8% of GDP — out of this, fiscal measures worth
2% of GDP have been identified so far.
12.6 The Commission concludes that, overall,
despite the 2010 fiscal slippage, Greece is getting ready to take
the necessary actions to implement the required policies to remain
on track, with a view to putting an end to the excessive deficit
by 2014. Therefore the Commission believes Greece is satisfactorily
complying with the May 2010 Council Decision.
12.7 Consequent on the Commission Communication,
document (a), the Council believed it appropriate to amend for
the third time, as in document (b), the May 2010 Council Decision
to ensure Greece meets its deficit target for 2011. The main requirements
amended or added through this new Decision include:
- clearing arrears accumulated
in 2010;
- implementing a medium-term strategy plan which
identifies permanent fiscal consolidation of at least 8% of GDP,
plus a contingency reserve, to be published before end-March 2011;
- an anti-tax evasion plan which includes quantitative
performance indicators;
- producing a detailed action plan with a timeline
to complete and implement the simplified public sector remuneration
system;
- continuing to implement comprehensive health
care reform started in 2010 to keep public health expenditure
at or below 6% of GDP;
- fighting waste and mismanagement in state-owned
companies yielding fiscal savings of at least €800 million
(£682 million);
- publication of an inventory of state-owned assets,
with a view to accelerating privatisation plans; and
- reform of the secondary/supplementary pension
schemes, by merging schemes and starting calculation of benefits
on the basis of the new notional defined contribution system.
12.8 The new Council Decision does not amend
the timeline for Greece to end the present excessive deficit situation
"as rapidly as possible, at the latest, by the deadline of
2014".
The Government's view
12.9 The Financial Secretary to the Treasury
(Mr Mark Hoban) says that the Commission Communication, document
(a), 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.
12.10 The Minister also says that there are no
direct financial implications for the UK arising from either of
documents. 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; and
- 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
installments and the IMF's status as a preferred creditor.
Conclusion
12.11 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.
44 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
45
The 17 Member States (Austria, Belgium, Cyprus, Germany, Estonia,
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
10 Member States (including the UK) produce Convergence Programmes. Back
46
(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
47
(31896) 12936/10 (31897) 12937/10: see HC 428-v (2010-11), chapter
13 (27 October 2010) and (32338) 17753/10 (32339) 17752/10: see
HC 428-xx (2010-11), chapter 10 (16 March 2011). Back
48
On an ESA 95 basis, that is the European System of National and
Regional Accounts, see: http://circa.europa.eu/irc/dsis/nfaccount/info/data/esa95/en/titelen.htm.
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