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Council Opinion on the updated Stability Programme of Austria, 2009-2013
Council Opinion on the updated Stability Programme of Belgium, 2009-2012
Council Opinion on the updated Convergence Programme of Bulgaria, 2009-2012
Council Opinion on the updated Convergence Programme of the Czech Republic, 2009-2012
Council Opinion on the updated Convergence Programme of Denmark, 2009-2015
Council Opinion on the updated Convergence Programme of Estonia, 2009-2013
Council Opinion on the updated Stability Programme of Finland, 2009-2013
Council Opinion on the updated Stability Programme of France, 2009-2013
Council Opinion on the updated Stability Programme of Germany, 2009-2013
Council Opinion on the updated Convergence Programme of Hungary, 2009-2012
Council Opinion on the updated Stability Programme of Ireland, 2009-2014
Council Opinion on the updated Stability Programme of Italy, 2009-2012
Council Opinion on the updated Convergence Programme of Latvia, 2009-2012
Council Opinion on the updated Convergence Programme of Lithuania, 2009-2012
Council Opinion on the updated Stability Programme of Luxembourg, 2009-2014
Draft Council Opinion on the updated Stability Programme of Malta 2009-2012
Council Opinion on the updated Convergence Programme of Poland, 2009-2012
Council Opinion on the updated Stability Programme of Portugal, 2009-2013
Council Opinion on the updated Convergence Programme of Romania, 2009-2012
Council Opinion on the updated Stability Programme of Slovakia, 2009-2012
Council Opinion on the updated Stability Programme of Slovenia, 2009-2013
Council Opinion on the updated Stability Programme of Spain, 2009-2013
Council Opinion on the updated Convergence Programme of Sweden, 2009-2012
Council Opinion on the updated Stability Programme of the Netherlands, 2009-2012
Council Opinion on the updated Convergence Programme of the United Kingdom, 2009/10-2014/15
Council Opinion on the updated Stability Programme of Cyprus, 2009-2013
|
| Legal base | Article 126(5) TFEU; —; QMV (excepting the Member State concerned)
|
| Documents originated | —
|
| Deposited in Parliament | (a)-(y) 25 May 2010
(z) 11June 2010
|
| Department | HM Treasury
|
| Basis of consideration | (a)-(x) and (z) EM of 26 July 2010
(y) EM of 26 July 2010
|
| Previous Committee Report | None
|
| Discussed in Council | (a)-(y) 26 April 2010
(z) 6 June 2010
|
| Committee's assessment | Politically important
|
| Committee's decision | Cleared
|
Background
75.1 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%.[323]
Each year the Council of Economic and Finance Ministers (ECOFIN)
issues an Opinion on the updated stability or convergence programme
of each Member State.[324]
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.
75.2 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.
The documents
75.3 These documents are the annual Council Opinions on the stability
or convergence programmes of all the Member States except Greece.
The conclusions of the Opinions can be grouped together by similarity:
- Bulgaria, Estonia, Hungary, Romania, Slovenia and Sweden all
received favourable conclusions, with their Opinions stating that
the programmes were deemed adequate and that they had implemented
an appropriate consolidation of public finances that were in line
with the relevant Council Recommendation;
- Belgium, the Czech Republic, Italy, Latvia, Lithuania,
Luxembourg, Malta, Poland and Slovenia all received generally
satisfactory conclusions. For these Member States, the Opinions
note that, although their programmes were appropriate overall
and in line with the relevant Council Recommendation, risks still
remain and in some examples more information is needed before
a more conclusive judgement can be made;
- for Austria, Cyprus, Denmark, Finland, France,
Germany, Ireland and the Netherlands, the Opinions were less positive
and stated that the public finances have deteriorated significantly.
For these Member States major risks still remain and the introduction
of further consolidation measures was essential; and
- for Portugal and Spain, the Opinions were critical
and highlighted high deficits and mounting debt levels. They reiterated
the importance of further fiscal consolidation measures in achieving
the aims of their ambitious programmes.
75.4 The recommendations of the Opinions can also
be grouped together by similarity:
- many Member States, including
Austria, Germany, Hungary, Italy, Latvia, Lithuania, Luxembourg,
Malta, Poland, Romania, Slovenia and the Netherlands, were asked
to both refine and substantiate their consolidation measures;
- Cyprus, Denmark, France, Ireland, Latvia, Lithuania,
Portugal and Spain were recommended to take even more direct action
and be on stand-by to adopt additional new consolidation measures;
- all the Member States, bar Bulgaria, Denmark,
Luxembourg, Slovenia and Sweden, were recommended to strengthen
and improve their budgetary framework, focusing particularly on
the medium-term;
- some Member States whose public finances are
deemed to be in the most severe state — Italy, Ireland and
Spain — were advised to rigorously implement their budgetary
and fiscal plans with urgency;
- in a similar vein, Bulgaria was advised to implement
a strict fiscal policy and Belgium was recommended to ensure a
high primary surplus;
- more indirect recommendations include Bulgaria,
Malta, Portugal and Slovenia strengthening the efficiency of public
spending and France, Poland and the Netherlands allocating windfall
revenue to deficit reduction;
- Austria, Belgium, Cyprus, Ireland, Italy, Portugal
and Spain were advised to seize any opportunities beyond the fiscal
effort, including from unexpected better economic conditions,
to accelerate the reduction of the gross debt ratio back towards
the 60% of GDP reference value;
- recommendations on structural reform measures,
including in areas such as education and employment, were made
to Cyprus, the Czech Republic, Hungary, Ireland, Latvia, Lithuania,
Luxembourg, Malta, Romania, Slovakia, Slovenia, Spain and the
Netherlands;
- Italy, Germany, Spain and Sweden were advised
to improve their data compliance;
- Austria and Germany were invited to submit in
time for the assessment of the effective action under the excessive
deficit procedure an addendum to the programme to report on progress
made in the implementation of the relevant Council Recommendation;
and
- the Czech Republic, Denmark, France, Germany,
Ireland, Italy, Malta, Poland and the Netherlands were asked to
provide additional information in the next update of their convergence
programmes.
75.5 As for the individual Opinions, in his first
Explanatory Memorandum the Financial Secretary to the Treasury
(Mr Mark Hoban) helpfully summarises all them, except that for
the UK, document (y), which is the subject of his second Explanatory
Memorandum. We reproduce these summaries:
"Austria — Council Opinion on the updated
stability programme, 2009-2013
"After Austria's worst post-war recession, the
programme has general government deficit reaching 3.5% of GDP
(up from 0.4% of GDP in 2008) and public debt at 66.5% of GDP
in 2009. The programme also predicts a pick up in real GDP growth
from -3.4% in 2009 to 1.5% in 2010-11 and around 2% thereafter.
The structural balance is expected to narrow from 3.9% of GDP
in 2010 to 2.2% of GDP in 2013, corresponding to an average annual
fiscal effort somewhat below ¾% of GDP over the period 2011-
2013. Government gross debt is estimated at 66.5% of GDP in 2009,
up from 62.5% in the year before.
"Belgium — Council Opinion on the updated
stability programme, 2009-2012
"The downturn has had a significant adverse
impact on Belgian public finances, and the general government
deficit deteriorated from 1.2% of GDP in 2008 to 5.9% of GDP in
2009. The programme also predicts that real GDP will grow by 1.1%
in 2010 and accelerate to 1.7% in 2011 and then 2.2% in 2012.
Annual GDP growth is expected to turn slightly positive in 2010
(0.6%) and to increase to 1½% in 2011. These projections
are cautious given the better-than-expected outcome for the second
half of 2009.
"Bulgaria — Council Opinion on the
updated convergence programme, 2009-2012
"Prior to the crisis, Bulgaria had witnessed
strong real GDP growth. The programme envisages that real GDP
growth will improve from -5% in 2009 to 0.3% in 2010 before recovering
to an average rate of 4¼% over the rest of the programme
period. The revenue to-GDP ratio is expected to increase to almost
39¼% of GDP (from 37½% of GDP in the previous year),
supported by higher indirect taxes and other revenue. The medium-term
budgetary objective (MTO) adequately supports a surplus of ½%
of GDP, which the programme aims to achieve from 2010 onwards.
The government gross debt ratio is well below the Treaty reference
value throughout the programme period and is estimated at around
15% of GDP in 2009.
"Cyprus — Council Opinion on the updated
stability programme, 2009-2013
"In 2009 economic activity contracted by 1.7%
of GDP — the first time Cyprus has experienced negative
growth in the last thirty-five years. The programme envisages
that real GDP growth will increase from -1.7% in 2009 to 0.5%
in 2010 and will then recover to an average rate of around 2.6%
over the rest of the programme period. The primary aim of the
programme is to bring the general government balance below the
3% of GDP reference value by 2013. The programme projects the
nominal budget deficit to decline to 4.5% of GDP in 2011 (from
6.1% in the previous year) and 3.4% in 2012 before it eventually
reaches 2.5% in 2013. The government gross debt-to-GDP ratio is
estimated at 56.2% of GDP in 2009, up from 48.4% in the year before.
The debt ratio will breach the reference value of 60% of GDP in
2010 and is projected to remain above the reference value throughout
the programme period. It is projected to increase to around 63%
of GDP in 2011 and 2012, thereafter slightly declining.
"Czech Republic — Council Opinion on
the updated convergence programme, 2009-2012
"After a three-year period of growth above 6%,
real GDP grew by only 2.5% in 2008 and declined by 4% in 2009.
The main challenge is to reduce the high structural government
deficit, estimated at around 6% of GDP in 2009 to a sustainable
level, and the programme projects the general government deficit
at 5.3% of GDP in 2010 and then to 4.8% and 4.2% of GDP in 2011
and 2012 respectively. The programme also envisages real GDP growth
at 1.3% in 2010, 2.6% in 2011 and 3.8% in 2012 and when assessing
against currently available information, this seems plausible
until 2011. Government gross debt is estimated at 35% of GDP in
2009, up from 30% in the year before. The debt ratio is projected
to increase by further 7 percentage points over the programme
period, reaching 42% of GDP in 2012.
"Denmark — Council Opinion on the updated
convergence programme, 2009-2015
"The economic crisis hit the Danish economy
hard in 2009, and resulted in the country's worst recession since
the Second World War. The large fiscal stimulus packages that
were implemented are expected to result in a deficit that is set
to exceed the 3% of GDP reference value of the Stability and Growth
Pact (SGP) between 2010 and 2012. Public debt is still expected
to remain below 60% of GDP reference value. Real GDP growth in
2009 was -4.3% but is expected bounce back to 1.3% in 2010, and
then accelerating at an average of 2.2% over the remainder of
the programme period. General government deficit is expected to
widen to 5.3% of GDP in 2010.
"Estonia — Council Opinion on the updated
convergence programme, 2009-2013
"The programme predicts that real GDP growth,
following a drop of around 14.5% in 2009, will be -0.1% in 2010,
recovering to an average growth rate of 3.7% over the rest of
the programme period. It also envisages the general government
deficit in 2009 at 2.6% of GDP. The structural balance amounted
to 3½% of GDP suggesting a significantly restrictive fiscal
stance. Government gross debt ratio is 7.8% of GDP in 2009 and
is projected to increase to 14.3% of GDP by the end of the programme
period.
"Finland — Council Opinion on the updated
stability programme, 2009-2013
"Government finances were weakened by over 6%
of GDP on 2009. The programme envisages that after a sharp contraction
by 7.6 % in 2009, real GDP growth will resume to 0.7% in 2010,
accelerating to 2.4% and 3.5% in 2011 and 2012 respectively, before
moderating to 3% in 2013. A general government deficit of 2.2%
of GDP is expected for 2009 after a significant deterioration
from a surplus of 4.4% of GDP in 2008. Government gross debt is
estimated at 41.8% of GDP in 2009, up from 34.2% in the year before
and the debt ratio is projected to increase by a further 14.6
percentage points over the programme period, up to 56.4% of GDP
by 2013.
"France — Council Opinion on the updated
stability programme, 2009-2013
"Economic activity in France lost its dynamism
in the course of 2008, declining sharply in the fourth quarter
of 2008 and in the first quarter of 2009. After a contraction
by 2.2% in 2009 real GDP will grow again by 1.4% in 2010 before
recovering to an average rate of 2.5% over the remainder of the
programme. The programme estimates the general government deficit
in 2009 at 7.9% of GDP. The major deterioration from a deficit
of 3.4% of GDP in 2008 reflects to a large extent the impact of
the crisis on government finances. The programme then expects
the general government deficit in 2010 to deteriorate even more
to 0.3% of GDP and reach 8.2% of GDP in 2010. The programme suggests
that the government gross debt is on an increasing trend until
2012, estimated at 77.4% of GDP in 2009, up from 67.4% in 2008.
A further increase by a 9.2 percentage points is projected over
the programme period, reaching the level of about 87% of GDP,
mainly driven by continued high government deficits.
"Germany — Council Opinion on the updated
stability programme, 2009-2013
"The programme envisages that after a slump
of 5% in 2009, real GDP growth will be restored, moving from 1.4%
in 2010 to an average rate of 2% over the rest of the programme
period. According to the programme, the nominal general government
deficit will increase from 3.2% of GDP in 2009 to 5½% in
2010. Government gross debt is estimated at 72½% of GDP in
2009, up from 65.9% in the year before and the debt ratio is projected
to increase by a further 9½ percentage points over the programme
period up to 82% of GDP. This is mainly driven by continued government
deficits and to a lesser extent by unspecified debt-increasing
stock-flow adjustments of around ½% of GDP per annum between
2011 and 2013.
"Hungary — Council Opinion on the updated
convergence programme, 2009-2012
"The programme envisages that after a contraction
of 6.7% in 2009, real GDP will decline further by 0.3% in 2010
and then resume growth by 3¾% in 2011 and 2012. The programme
estimates the general government deficit in 2009 at 3.9% of GDP
in 2009, after 3.8% in 2008. The programme aims to reduce the
general government deficit from 3.8% of GDP in 2010 to 2.8% by
2011 and then further to 2.5% in 2012. The 2011 and 2012 deficit
targets result in a recalculated structural deficit of 1½%
and 2½% of GDP, respectively. It means that a structural
improvement by around 3 percentage points of GDP in 2009 is projected
to be followed by a 0.1% of GDP improvement in the period 2010-2011
and in 2012 the structural balance would even deteriorate by 1%
of GDP. Government gross debt is estimated at 78% of GDP in 2009,
up from around 73% in the year before and a further rise to 79%
of GDP in 2010 is projected before it would start declining to
77% and 73½% in 2011 and 2012, respectively.
"Ireland — Council Opinion on the updated
stability programme, 2009-2014
"The programme envisages that after declines
in real GDP by 7.5% in 2009 and 1.4% in 2010, the economy will
return to positive growth averaging 4% over 2011-2014. The programme
estimates the general government deficit in 2009 at 11.7% of GDP.
The significant deterioration from a deficit of 7.2% of GDP in
2008 to a large extent reflects the substantial knock-on effect
that the broad-based recession has had on the public finances.
General government deficit widened further in 2009 but is planned
to stabilise in 2010, at 11.6% of GDP. From 2011 onwards, the
programme envisages a reduction of the deficit to below the 3%
of GDP reference value by 2014. The government gross debt ratio
is projected to be on an increasing trend until 2012. Specifically,
the debt-to-GDP ratio soared to nearly 66% of GDP in 2009 from
44% of GDP in 2008. The programme projects a further steep increase
in the debt ratio to a peak of nearly 84% of GDP in 2012, followed
by a gradual decline to below 81% of GDP by the end of the programme
period in 2014.
"Italy — Council Opinion on the updated
stability programme, 2009-2012
"The programme envisages that real GDP will
return to positive growth of 1.1% in 2010, from -4.8% in 2009
(-5% according to the statistical office's estimate released on
1 March 2010), and accelerate to a rate of 2% over the rest of
the programme period. The programme estimates the general government
deficit in 2009 at 5.3% of GDP with a significant deterioration
from a deficit of 2.7% of GDP in 2008. The primary balance is
planned at 1.3% of GDP in 2011, and 2.7% in 2012. The planned
annual consolidation amounts to ½ percentage point of GDP
in 2011 and ¾ percentage points in 2012 in structural terms.
The general government gross debt-to-GDP ratio is projected to
be on an increasing trend until 2010. After rising in 2008, the
debt ratio is estimated in the programme to have increased by
9.3 percentage points, to 115.1% of GDP in 2009 (115.8% in the
statistical office's estimate released on 1 March 2010), mainly
due to the high interest burden and sharp contraction in real
GDP. The debt ratio is then projected to follow a declining path
in 2011 and 2012, to 114.6% of GDP, mainly thanks to the planned
positive primary balances and the assumed acceleration in real
GDP growth.
"Latvia — Council Opinion on the updated
convergence programme, 2009-2012
"The programme envisages that after an estimated
exceptionally severe 18.0% fall in output in 2009, real GDP will
decrease by a further 4.0% in 2010 before growing by 2.0% in 2011
and 3.8% in 2012. The programme estimates the general government
deficit in 2009 at 10.0% of GDP and a significant deterioration
from a deficit of 4.1% of GDP in 2008. They want deficits limited
to 6% and 3% of GDP in 2011 and 2012 and therefore consistent
with the Council Recommendation of 7 July 2009 of correcting the
excessive deficit by 2012 at the latest. Government gross debt
is estimated at 34.8% of GDP in 2009, up from 19.5% in the year
before. The debt ratio is projected to increase sharply by a further
22 percentage points over the programme period, driven by significant
fiscal deficits, and consequently there are risks surrounding
the programme projection showing the debt ratio peaking at slightly
below 60% in 2011. The projection for the final programme year
of 2012 is 56.8% of GDP.
"Lithuania — Council Opinion on the
updated convergence programme, 2009-2012
"The programme envisages that real GDP, after
dropping by 15.0% in 2009, grows by 1.6% in 2010, accelerating
to 3.2% in 2011, but slowing back to 1.2% in 2012. The programme
estimates the general government deficit in 2009 at 9.1% of GDP.
The significant deterioration from a deficit of 3.2% of GDP in
2008 mainly reflects a substantial tax shortfall. Government gross
debt is estimated at 29.5% of GDP in 2009, substantially up from
15.6% in the year before. The debt ratio is projected to increase
by a further 11.5 percentage points over the programme period
to 41% of GDP in 2012, mainly driven by continued high government
deficits.
"Luxembourg — Council Opinion on the
updated stability programme, 2009-2014
"The Luxembourgish economy was severely hit
by the crisis: real GDP, after zero growth in 2008, dropped by
3.9% in real terms in 2009, according to the most recent estimates.
The programme then envisages real GDP to grow by 2.5% in 2010,
after a contraction by 3.9% in 2009, and by 2.9% a year on average
over the rest of the programme period. On the deficit, the programme
estimates the general government deficit in 2009 at 1.1% of GDP.
This significant deterioration from a surplus of 2.5% of GDP in
2008 in due to a surge by almost 5 percentage points of GDP in
public expenditure. The debt ratio doubled from 6.6% of GDP in
2007 to 13.5% in 2008, largely as a result of the financial support
to the financial sector. The programme projects a further rise
from 14.9% of GDP in 2009, to 37.4% in 2014. This increase will
exceed the sum of the projected deficits, due to sizable transfers
from central government to social security.
"Malta — Council Opinion on the updated
stability programme, 2009-2012
"The impact of the downturn and some non-recurrent
expenditure-increasing items in 2008 led to a significant widening
of the general government deficit in 2008-2009 compared to 2007.
The programme envisages that real GDP will return to positive
growth in 2010, at 1.1%, after a 2% contraction estimated for
2009, followed by a further recovery, to an average rate of 2.6%
over the rest of the programme period. The programme estimates
the general government deficit in 2009 at 3.8% of GDP. In structural
terms, the budgetary position would improve by ¾ pp. of GDP
in 2011 but worsen again by ½ percentage points in 2012.
The debt ratio is projected to remain above the Treaty reference
value throughout the programme period. The programme estimates
government gross debt at 66.8% of GDP in 2009, up from a level
below 64% in 2008. The debt ratio is projected to increase further
in 2010, by almost 2 percentage points, before declining to around
67% of GDP in 2012.
"The Netherlands — Council Opinion
on the updated stability programme, 2009-2012
"After a severe contraction of 4% real GDP will
grow again by 1½% in 2010 before further recovering to an
average rate of 2% over the rest of the programme period. Assessed
against currently available information, this opinion states that
the scenario appears to be based on favourable growth assumptions
for 2010 and 2011 and plausible assumptions for 2012. According
to the programme the general government deficit deteriorated strongly
from a surplus of 0.7% of GDP in 2008 to a deficit of 4.9% of
GDP in 2009. The budgetary target for 2010 in the update of the
programme is a deficit of 6.1% of GDP. The government gross debt-to-GDP
ratio was above the Treaty reference value in 2009 and is on an
increasing trend over the whole programme period. It is estimated
at 62.3% in 2009, up from 58.2% in the year before. The debt ratio
is projected to increase by a further 10% of GDP over the programme
period to 72.5% in 2012, mainly driven by continued high government
deficits.
"Poland — Council Opinion on the updated
convergence programme, 2009-2012
"Poland was the only EU country that recorded
positive growth in 2009 with real GDP estimated to have increased
by 1.7%. The programme envisages that real GDP growth will accelerate
from 1.7% in 2009 to 3% in 2010, 4.5% in 2011 and 4.2% in 2012.
Assessed against currently available information, the opinion
records that the assumption for real GDP growth in 2010 appears
slightly favourable and the assumptions for 2011 and 2012 seem
favourable. The programme presents an alternative, "risk
scenario" with lower real GDP growth, at 2.7% in 2010, 3.7%
in 2011 and 3.5% in 2012, which appears more plausible. The programme
estimates the general government deficit in 2009 at 7.2% of GDP
and the significant deterioration from a deficit of 3.6% of GDP
in 2008 reflects to a large extent the impact of the crisis on
government finances. The programme projects a slight decline in
the government deficit to 6.9% of GDP in 2010. Government gross
debt is estimated to have reached 50.7% of GDP in 2009, up from
47.2% in 2008. This ratio is projected to increase by 5 percentage
points over the programme period reaching the level of around
56% of GDP in 2012 but remaining below the Treaty reference value,
mainly driven by high government deficits.
"Portugal — Council Opinion on the
updated stability programme, 2009-2013
"The programme assumes that real GDP growth
will gradually improve from 0.7% in 2010 to 1.7% by 2013. The
programme estimates the general government deficit in 2009 at
9.3% of GDP, which is a significant deterioration from a deficit
of 2.8% of GDP in 2008. The main goal of the medium-term budgetary
strategy is to bring the deficit below the 3% of GDP reference
value by 2013 and government deficits of 6.6%, 4.6% and 2.8% of
GDP for 2011, 2012 and 2013 respectively. Government gross debt
is estimated at 77.2% of GDP at the end of 2009, up from 66.3%
in 2008, reflecting both the sizeable increase in the deficit
and the decline in nominal GDP. The debt ratio is projected to
increase by a further 12½ percentage points over the programme
period, to reach 90.7% of GDP in 2012, before declining slightly
to 89.8% of GDP in 2013.
"Romania — Council Opinion on the updated
convergence programme, 2009-2012
"With an average annual GDP growth rate of 6.8%
between 2004 and 2008, Romania was one of the fastest growing
EU Member States. The programme envisages that real GDP growth
will return to positive in 2010 (1.3%) and gradually accelerate
to 3.7% by 2012. Assessed against currently available information
and in particular the worse-than-expected outcome for the fourth
quarter of 2009, this scenario appears to be based on slightly
favourable growth assumptions for 2010. The programme estimates
that the general government deficit in 2009 equalled 8.0% of GDP,
which is slightly above target (7.8%) due to an increase in government
payment arrears and is a significant deterioration from the 5.5%
of GDP deficit recorded in 2008. The 2010 budget targets a deficit
of 6.3% of GDP. The programme sets out a gradual path for bringing
down the headline deficit from 6.3% of GDP in 2010 to 4.4% of
GDP in 2011 and 3.0% of GDP in 2012. Government gross debt is
estimated at 23% of GDP in 2009, up from 13.6% the year before.
While remaining well below the Treaty reference value, the debt
ratio is projected to increase by a further 6.7 percentage points
over the programme period, to 29.7% of GDP in 2012.
"Slovakia — Council Opinion on the
updated stability programme, 2009-2012
"The programme projects real GDP growth at 1.9%
in 2010, 4.1% in 2011 and 5.4% in 2012. The programme estimates
the government deficit in 2009 at 6.3% of GDP, up from 2.3% of
GDP in 2008. For 2010 the programme targets a general government
deficit of 5.5% of GDP. The headline deficit is expected to fall
from 5.5% of GDP in 2010 to 4.2% and 3.0% of GDP in 2011 and 2012,
respectively. The government gross debt increased from 27.7% of
GDP in 2008 to 37.1% of GDP in 2009. The increase reflects the
high deficit and the significant contraction of real GDP in 2009.
While remaining well below the Treaty reference value, the debt
ratio is projected to increase further in 2010 and 2011, when
it would reach 42.5% of GDP, and to slightly decline in 2012,
to 42.2% of GDP.
"Slovenia — Council Opinion on the
updated stability programme, 2009-2013
"The programme envisages that real GDP will
return to positive growth in 2010, at 0.9%, from -7.3% in 2009
and accelerate to an average rate of 3.2% over the rest of the
programme period. The programme estimates the general government
deficit to have increased from 1.8% of GDP in 2008 to 5.7% in
2009. For 2010, the programme plans for the general government
deficit to stabilise at 5.7% of GDP. The main aim of the programme's
medium-term budgetary strategy is to reduce the deficit below
the 3% of GDP deficit reference value by 2013, with deficit targets
set at 4.2%, 3.1% and 1.6% of GDP for 2011, 2012 and 2013 respectively.
Government gross debt is estimated in the programme to have increased
markedly from 22.5% of GDP in 2008 to 34.4% of GDP in 2009. The
debt ratio is projected to remain below the Treaty reference value
throughout the programme period, but to increase by more than
8 percentage points by 2012, to almost 43% of GDP, mainly on the
back of primary deficits and improving nominal GDP outlook, and
to record a modest fall in 2013.
"Spain — Council Opinion on the updated
stability programme, 2009-2013
"The programme assumes that GDP will contract
by 0.3% in real terms in 2010 and recover thereafter to real GDP
growth of 1.8% in 2011 and an average of 3% in 2012 and 2013.
The programme estimates the general government deficit in 2009
at 11.4% of GDP with a significant deterioration from a deficit
of 4.1% of GDP in 2008. According to the programme, the target
for the general government deficit in 2010 stands at 9.8% of GDP,
which is markedly higher than the deficit of 8.1% of GDP projected
in the 2010 budget. This deterioration by 1.7 percentage points
of GDP reflects a base effect from 2009. They also target a deficit
of 7.5%, 5.3% and 3% of GDP for 2011, 2012 and 2013, respectively.
Government gross debt is estimated at 55.2% of GDP in 2009, significantly
up from 39.7% in the year before. The debt ratio is projected
to increase by a further 19 percentage points over the programme
period, to breach the Treaty reference value in 2010 and to reach
74% of GDP by 2013, mainly driven by a continued high government
deficit.
"Sweden — Council Opinion on the updated
convergence programme, 2009-2012
"The programme envisages that real GDP growth
will pick up from -5.2% in 2009 to 0.6% in 2010 and to average
3.5% over the rest of the programme period. The programme estimates
the general government deficit in 2009 to be 2.2% of GDP, which
is a significant deterioration from a surplus of 2.5% of GDP in
2008. The budgetary projections are based on a no-policy change
assumption for the period after 2010 and foresee the headline
general government deficit to gradually narrow from 3.4% of GDP
in 2010 to 2.1% of GDP in 2011 and 1.1% of GDP in 2012. The primary
balance is expected to have a similar profile, going from a deficit
of 2.2% of GDP in 2010 to a deficit of 0.8% in 2011, before swinging
into a surplus of 0.4% of GDP in 2012. Government gross debt is
estimated at 42.8% of GDP in 2009, up from 38.0% of GDP the year
before. The debt ratio is then projected to increase by a further
2.4 percentage points over the programme period to 45.2% of GDP
in 2012, mainly driven by continued government deficits."
75.6 The Council Opinion on the convergence programme
of the UK (submitted in January 2010), document (y), was based
on an assessment of its economic content with reference to the
Commission's 2010 economic forecasts for the UK. The 2010 economic
forecast and the Opinion, were both written prior to the formation
of the present Government and subsequent announcements on fiscal
consolidation, including in the June 2010 Budget. The Opinion
says that:
- the fiscal strategy set out
in the January 2010 convergence programme is inconsistent with
the Council Recommendation of 2 December 2009 and the UK's fiscal
strategy is not sufficiently ambitious and needs to be significantly
reinforced;
- the UK's deficit was already
at risk of breaching the 3% of GDP reference value before the
economic and financial crisis ensued;
- since then a combination of the operation of
the automatic stabilizers, falls in asset prices and the fiscal
stimulus have provoked a major deterioration in the public finances;
- a restrictive fiscal policy in 2010/11 is appropriate,
accompanied by a more ambitious consolidation plan for the near
and medium term; and
- with a greater part of the reduction in the deficit
in the medium term driven by a tight spending envelope to 2014/15,
the absence of detailed departmental spending limits is a source
of uncertainty.
75.7 The Opinion then makes several recommendations
for the UK:
- avoid any further measures
that will result in a further deterioration on public finances
in 2010/11 and contain the deficit in 2010/11 to the level forecast
in the convergence programme in the event of weaker than expected
economic growth;
- target a more ambitious reduction of the deficit
to less than the 3% of GDP reference value by 2014/15, including
strengthening the planned pace of consolidation from 2011/12 onwards;
- capitalise on any further opportunities, such
as favourable economic and market conditions, to accelerate the
reduction of the gross debt ratio towards the 60% of GDP reference
value;
- publish in 2010 detailed departmental spending
limits underlying the overall expenditure projections for at least
a three-year period beyond 2010/11;
- implement the expenditure efficiency savings
identified;
- improve compliance with data requirements; and
- submit an addendum to the programme which details
the progress made in the implementation of the Council Recommendation
and outline a detailed consolidation strategy that will progress
towards the correction of the excessive deficit.
The Government's view
75.8 In his Explanatory Memorandum on the 25 Opinions
in documents (a)-(x) and (z) the Minister:
- notes that, whilst the Council
adopts Opinions and Recommendations based on the budgetary plans
of national governments as set out in their updated stability
or convergence programmes, this year the Opinions have also included
progress updates on the fiscal consolidation efforts, which were
implemented as part of the European Economic Recovery Plan;[325]
- adds that many Member States have already begun
withdrawing their financial stimulus measures;
- recalls that in the June 2010 European Council
Conclusions, in line with the view of the G20, Member States agreed
on a coordinated and differentiated exit strategy to ensure sustainable
public finances;[326]
and
- comments that the Government believes that Member
States should take forward fiscal consolidation as a priority
to reduce their deficits and support recovery.
75.9 In relation to the Council Opinion on the UK's
convergence programme, document (y), the Minister says that:
- the Government has made clear
that deficit reduction and continuing to ensure economic recovery
is its main priority and, independently of the Council, agrees
that accelerated action to put the UK's public finances back on
a sustainable path footing is required, as highlighted in the
Opinion;
- in its June 2010 Budget the Government announced
a comprehensive set of policies to bring borrowing under control
and place debt as a percentage of GDP onto a downward path;
- that budget delivered additional consolidation
of £40 billion on top of the plans set by the previous Government
in the March 2010 Budget for the period to 2014-15;
- it also introduced a new, forward looking "fiscal
mandate" which will guide the Governments budgetary planning
for the future;
- this mandate is to achieve cyclically adjusted
current balance by the end of the rolling, five year forecast
period;
- this results in plans for total consolidation
of £128 billion a year by 2015-16 — 77% delivered by
lower spending in 2015-16, the remainder through tax;
- this additional tightening is forecast to reduce
the deficit to 2.2% of GDP in 2014-15;
- this is consistent with the December 2009 Recommendation
to the UK to reduce the "Treaty Deficit" below the 3%
of GDP Stability and Growth Pact threshold in 2014-15;
- to guide fiscal policy decisions over the medium
term the budget set out the Government's forward-looking fiscal
mandate to achieve cyclically-adjusted current balance by the
end of the rolling, five-year forecast period, supplemented by
a target for public sector net debt as a percentage of GDP to
be falling at a fixed date of 2015-16; and
- the Government has created the Office for Budget
Responsibility, which introduces independence, greater transparency
and credibility to the economic and fiscal forecasts on which
fiscal policy is based.
Conclusion
75.10 We are grateful to the Minister for his
full description of these Council Opinions. We have no questions
to raise and clear the documents.
323 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
324
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
325
(30213) 16097/08: see HC 19-i (2008-09), chapter 4 (10 December
2008) and Hansard, 20 January 2009, cols 626-653. Back
326
See http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/115346.pdf.
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