Navigation path

Left navigation

Additional tools

Other available languages: FR DE SV FI

IP/07/151

Brussels, 7 February 2007

Commission assesses stability programmes of Finland, Ireland and Luxembourg

Having examined their updated stability programmes[1], the European Commission finds the present budgetary positions of Finland, Ireland and Luxembourg generally sound and their projections for the coming years in line with their respective medium-term objectives. The Commission needs not give any specific policy invitations for Finland, which plans for budgetary surpluses that, albeit declining slightly, are above its target of 2%, has a low public debt and is well provisioned for ageing costs. With a sustained surplus but some risks of pro-cyclical policies in 2007, the public finances of Ireland also provide a good example of fiscal policies in the medium term. Ireland is nevertheless invited to remain prudent in view of a possible slowdown in the housing sector. Luxembourg has not yet achieved it's medium-term objective, but should do so this year. As Luxembourg and Ireland face a strong projected increase in age-related expenditure, they are also encouraged to to improve the long term sustainability of their public finances.

“ All three countries run sound fiscal policies although in the case of Luxembourg it has yet to achieve it's medium-term objective. They are encouraged to pursue prudent fiscal policies especially as they experience an economic growth well above the euro area average and, in the case of Ireland and Luxembourg, to be able to cater for the projected increase in the costs of an ageing population", said Economic and Monetary Affairs Commissioner Joaquín Almunia.

FINLAND

Finland submitted a new update of its stability programme on 30 November 2006, covering the period 2006-2010. Based on a plausible macroeconomic scenario, the general government balance would remain in comfortable surplus, even if slightly declining to 2½ % of GDP by the 2010 horizon. The expected annual surpluses have been revised up by about 1 % of GDP each year compared with the previous update. The medium-term objective (MTO) put forward in the programme is a structural surplus (i.e. a surplus in cyclically-adjusted terms net of one-off and other temporary measures) of 2 % of GDP, which in view of the broadly balanced risks is expected to be met by a wide margin in every year. The debt ratio is estimated to decline further to below 34% of GDP by 2010. Sustainability of public finances is at low risk in Finland given the significant assets in public pension schemes and the currently favourable budgetary position.

Overall, the Commission considers that the medium-term budgetary position is sound and the budgetary strategy provides a good example of fiscal policies conducted in compliance with the Stability and Growth Pact

IRELAND

Ireland submitted a new update of its stability programme on 6 December 2006, covering the period 2006-2009. The programme is based on a plausible macroeconomic scenario, even though there are risks of a downturn in the residential construction sector and regarding property prices. Ireland plans for declining general government surpluses throughout the programme period. While the foreseen surpluses compare with moderate deficits in the previous update sent in 2005 and are in line with Ireland's MTO of a budget close to balance in structural terms, there is a risk that the fiscal policy in 2007 may become pro-cyclical. The debt ratio is set to decline further from an already low level, a prudent stance given that Ireland's finances are at medium risk in the long term from an a projected increase in age-related spending.

Overall, the Commission considers that the medium-term budgetary position is sound and, provided the fiscal stance in 2007 does not prove pro-cyclical, the budgetary strategy provides a good example of fiscal policies conducted in compliance with the Stability and Growth Pact. In any case, it would be prudent to maintain room for manoeuvre against any reversal of the current growth pattern which has been led by strong housing sector developments.

In view of, in particular, the projected increase in age-related expenditure, the Council should invite Ireland to continue to implement measures to improve the long-term sustainability of its public finances.

LUXEMBOURG

Luxembourg submitted a new update of its stability programme on 24 November 2006, covering the period 2006-2009. Based on a plausible macroeconomic scenario, the programme aims at restoring budgetary balance at the latest in 2009 by a significant reduction of the expenditure ratio. The budgetary targets are roughly similar to those presented in the previous update. The MTO is a structural deficit of about 0.8% of GDP, which is aimed to be achieved by 2007. Given the prudence of revenue projections, budgetary outcomes might even be better than envisaged, especially in 2006 and 2007. The debt ratio is very low and the social security holds sizeable reserves, but the budgetary costs of ageing are projected to be among the highest in the EU. For this reason, Luxembourg is at medium risk as regards the long-term sustainability of its public finances.

Overall, the Commission considers that, in a context of strong growth prospects, the programme is making rapid progress towards the MTO, which should be achieved from 2007 onwards.

In view of, in particular, the projected increase in age-related expenditure, the Council should invite Luxembourg to improve the long-term sustainability of public finances by implementing structural reform measures, especially in the area of pensions.
The Commission recommendations for Council Opinions are available at:
http://ec.europa.eu/economy_finance/about/activities/sgp/country/doctype/cr_en.htm

FINLAND
Comparison of key macroeconomic and budgetary projections



2005
2006
2007
2008
2009
2010
Real GDP
SP Nov 2006
2.9
4.5
3.0
2.9
2.6
2.1
(% change)
COM Nov 2006
2.9
4.9
3.0
2.6
n.a.
n.a.

SP Nov 2005
2.1
3.2
2.6
2.3
2.1
n.a.
HICP inflation
SP Nov 2006
0.9
1.5
1.3
1.7
1.7
1.7
(%)
COM Nov 2006
0.8
1.3
1.5
1.6
n.a.
n.a.

SP Nov 2005
1.0
1.3
1.5
1.8
1.8
n.a.
Output gap
SP Nov 20061
-1.3
0.1
0.2
0.1
-0.2
-0.8
(% of potential GDP)
COM Nov 20065
-1.5
0.1
0.2
-0.2
n.a.
n.a.

SP Nov 20051
-0.7
-0.2
-0.2
-0.5
-0.9
n.a.
General government
SP Nov 2006
2.7
2.9
2.8
2.7
2.7
2.4
balance
COM Nov 2006
2.7
2.9
2.9
2.9
n.a.
n.a.
(% of GDP)
SP Nov 2005
1.8
1.6
1.6
1.5
1.5
n.a.
Primary balance
SP Nov 2006
3.9
4.5
4.3
4.2
4.1
3.7
(% of GDP)
COM Nov 2006
4.1
4.3
4.2
4.1
n.a.
n.a.

SP Nov 2005
3.4
3.1
2.9
2.8
2.8
n.a.
Cyclically-adjusted balance
SP Nov 20061
3.3
2.9
2.7
2.7
2.8
2.8
(% of GDP)
COM Nov 2006
3.4
2.9
2.8
2.9
n.a.
n.a.

SP Nov 20051
2.1
1.7
1.7
1.7
2.0
n.a.
Structural balance2
SP Nov 20063
3.3
2.9
2.7
2.7
2.8
2.8
(% of GDP)
COM Nov 20064
3.4
2.9
2.8
2.9
n.a.
n.a.

SP Nov 2005
2.1
1.7
1.7
1.7
2.0
n.a.
Government gross debt
SP Nov 2006
41.3
39.1
37.7
36.2
35.0
33.7
(% of GDP)
COM Nov 2006
41.3
38.8
37.3
35.8
n.a.
n.a.

SP Nov 2005
42.7
41.7
41.1
40.6
40.1
n.a.
Notes:







1Commission services calculations on the basis of the information in the programme.



2Cyclically-adjusted balance (as in the previous rows) excluding one-off and other temporary measures.

3There are no one-off and other temporary measures in the programme.
4There are no one-off and other temporary measures in the Commission services’ autumn 2006 forecast.
5Based on estimated potential growth of 3.2%, 3.1%, 3.0% and 2.9% respectively in the period 2005-2008.




Source:







Stability programme (SP); Commission services’ autumn 2006 economic forecasts (COM); Commission services’ calculations

IRELAND
Comparison of key macroeconomic and budgetary projections


2005
2006
2007
2008
2009
Real GDP
(% change)
SP Dec 2006
5.5
5.4
5.3
4.6
4.1
COM Nov 2006
5.5
5.3
5.3
4.3
n.a.
SP Dec 2005
4.6
4.8
5.0
4.8
n.a.
HICP inflation
(%)
SP Dec 2006
2.2
2.7
2.6
2.0
1.7
COM Nov 2006
2.2
2.9
2.7
2.2
n.a.
SP Dec 2005
2.2
2.0
2.0
1.8
n.a.
Output gap
(% of potential GDP)
SP Dec 20061
-0.4
-1.2
-1.6
-2.2
-2.5
COM Nov 20065
-0.5
-1.4
-1.9
-2.7
n.a.
SP Dec 20051
-1.3
-1.9
-2.2
-2.1
n.a.
General government balance
(% of GDP)
SP Dec 2006
1.1
2.3
1.2
0.9
0.6
COM Nov 2006
1.1
1.2
0.9
0.4
n.a.
SP Dec 2005
0.3
-0.6
-0.8
-0.8
n.a.
Primary balance
(% of GDP)
SP Dec 2006
2.1
3.3
2.3
1.8
1.6
COM Nov 2006
2.1
2.2
1.9
1.4
n.a.
SP Dec 2005
1.5
0.6
0.4
0.5
n.a.
Cyclically-adjusted balance
(% of GDP)
SP Dec 20061
1.3
2.8
1.8
1.8
1.6
COM Nov 2006
1.3
1.7
1.6
1.5
n.a.
SP Dec 20051
0.8
0.2
0.1
0.1
n.a.
Structural balance2
(% of GDP)
SP Dec 20063
1.6
2.7
1.8
1.8
1.6
COM Nov 20064
1.6
1.7
1.6
1.5
n.a.
SP Dec 2005
0.8
0.2
0.1
0.1
n.a.
Government gross debt
(% of GDP)
SP Dec 2006
27.4
25.1
23.0
22.4
21.9
COM Nov 2006
27.4
25.8
24.4
23.6
n.a.
SP Dec 2005
28.0
28.0
28.2
28.3
n.a.
Notes:
1Commission services calculations on the basis of the information in the programme.
2Cyclically-adjusted balance (as in the previous rows) excluding one-off and other temporary measures.
3One-off and other temporary measures of -0.3% of GDP in 2005 (assumed: cf note 4) and 0.1% of GDP in 2006 (indicated in the programme); no information is given in the programme for 2007-09.
4One-off and other temporary measures taken from the Commission services’ autumn 2006 forecast (-0.3% of GDP in 2005, i.e. surplus-reducing).
5Based on estimated potential growth of 6.1%, 6.3%, 5.8% and 5.2% respectively in the period 2005-2008.

Source:
Stability programme (SP); Commission services’ autumn 2006 economic forecasts (COM); Commission services’ calculations

LUXEMBOURG
Comparison of key macroeconomic and budgetary projections



2005
2006
2007
2008
2009
Real GDP
(% change)
SP Nov 2006
4.0
5.5
4.0
5.0
4.0
COM Nov 2006
4.0
5.5
4.5
4.2
n.a.
SP Nov 2005
4.0
4.4
4.9
4.9
n.a.
HICP inflation
(%)
SP Nov 2006
3.8
2.9
1.4
2.0
2.0
COM Nov 2006
3.8
3.2
2.2
1.8
n.a.
SP Nov 2005
3.7
2.6
2.0
1.8
n.a.
Output gap
(% of potential GDP)
SP Nov 2006 1
-1.6
-0.3
-0.8
-0.5
-1.6
COM Nov 2006 5
-2.2
-0.9
-0.7
-0.9
n.a.
SP Nov 2005 1
-1.7
-1.3
-0.7
-0.6
n.a.
General government balance
(% of GDP)
SP Nov 2006
-1.0
-1.5
-0.9
-0.4
0.1
COM Nov 2006
-1.0
-1.0
-0.5
-0.3
n.a.
SP Nov 2005
-2.3
-1.8
-1.0
-0.2
n.a.
Primary balance
(% of GDP)
SP Nov 2006
-0.8
-1.3
-0.8
-0.2
0.3
COM Nov 2006
-0.8
-0.8
-0.3
-0.1
n.a.
SP Nov 2005
-2.1
-1.7
-0.7
0.1
n.a.
Cyclically-adjusted balance
(% of GDP)
SP Nov 2006 1
-0.2
-1.3
-0.5
-0.1
0.9
COM Nov 2006
0.0
-1.1
-0.2
0.1
n.a.
SP Nov 2005 1
-1.5
-1.2
-0.6
0.1
n.a.
Structural balance 2
(% of GDP)
SP Nov 2006 3
-0.2
-1.3
-0.5
-0.1
0.9
COM Nov 2006 4
0.0
-1.1
-0.2
0.1
n.a.
SP Nov 2005
-1.5
-1.2
-0.6
0.1
n.a.
Government gross debt
(% of GDP)
SP Nov 2006
6.1
7.5
8.2
8.5
8.5
COM Nov 2006
6.0
7.4
7.3
7.1
n.a.
SP Nov 2005
6.4
9.6
9.9
10.2
n.a.
Notes:
1 Commission services calculations on the basis of the information in the programme.
2 Cyclically-adjusted balance (as in the previous rows) excluding one-off and other temporary measures.
3 There are no one-off and other temporary measures in the programme.
4 There are no one-off and other temporary measures in the Commission services’ autumn 2006 forecast.
5 Based on estimated potential growth of 4.1%, 4.1%, 4.4% and 4.7% respectively in the period 2005-2008.
Source:
Stability programme (SP); Commission services’ autumn 2006 economic forecasts (COM); Commission services’ calculations


[1] According to Council Regulation (EC) No 1466/97 on the strengthening of budgetary surveillance and the surveillance and coordination of economic policies (as amended by Regulation No 1055/2005), Member States must submit updated macroeconomic and budgetary projections every year. Such updates are called stability programmes in the case of countries that have adopted the euro, and convergence programmes in the case of those that have not yet done so. This regulation is also referred to as the 'preventive arm' of the Stability and Growth Pact.


Side Bar

My account

Manage your searches and email notifications


Help us improve our website