Brussels, 7 February 2007
Having examined their updated stability programmes, 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 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 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 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.
 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.