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IP/07/292

Brussels, 7 March 2007

Commission assesses stability programmes of Belgium and Spain

Having examined their updated stability programmes[1], the European Commission finds that Belgium and Spain have sound budgetary objectives for the medium term (so-called Medium-Term Objectives or MTOs). Spain plans budgetary surpluses throughout the programme period (2005-2009) and Belgium is expected to meet its objective of a structural surplus of 0.5% of GDP. All things considered, Spain's budgetary strategy provides a good example of a sound fiscal policy conducted in compliance with the Stability and Growth Pact. Belgium's continued reduction of its still high debt is also an example of fiscal policy in compliance with the Pact, but there are risks to the achievement of budgetary targets. This makes it particularly important that the 2007 budgetary target be met and the pace of adjustment be strengthened in the following years. As both countries, and Spain in particular, face a strong projected increase in age-related expenditure, they are encouraged to improve the long-term sustainability of their public finances by measures to reduce the cost of ageing.

“Together with Denmark and Finland, already examined, Spain provides a good example of fiscal policies run in compliance with the Stability and Growth Pact. This is a prudent policy in the light of rising external imbalances, the inflation differential with the euro area and, as is the case for most EU countries, the future costs of ageing. Belgium's strategy of healthy primary surpluses will permit to further reduce the public debt and will help face up to the budgetary impact of ageing although in respect to the latter reforms are also required. But it should not relax the effort in the medium-term, starting with this year., said Economic and Monetary Affairs Commissioner Joaquín Almunia.

BELGIUM

Belgium submitted a new update of its stability programme on 13 December 2006, covering the period 2006-2010.

On the basis of economic growth projections that appear plausible, Belgium aims to reduce its debt-to-GDP ratio to below 75% in 2010, through a gradual build-up of nominal budgetary surpluses. Its public debt in 2005 was above 90% and only five years ago (2002) it was above 100%. Such policy is a prudent one in view of the costs expected to arise from an ageing population.

Regarding the general government balance, Belgium continues to target a structural surplus of 0.5% as its medium-term objective (MTO), which is more demanding than what would be implied by the debt ratio and average potential output growth in the long term. The annual nominal general government targets are unchanged compared with the previous programme. However, it should be noted that the expected surpluses would be almost entirely achieved thanks to the falling debt servicing costs. Moreover, the programme still seems to rely on one-off measures. The budgetary outcomes could also turn out less positive than projected in the programme in 2007 and, from 2008, there is a risk that expired one-offs will not be replaced by structural measures. As regards the long-term sustainability of public finances, Belgium is considered to be at medium risk in view of its still-high debt ratio and the relatively high projected ageing costs.

Overall, the continued and significant reduction of the high debt stock provides an example of fiscal policies conducted in compliance with the Pact. The medium-term budgetary objective is expected to be reached within the programme period, although possibly not in 2008, as planned, due to the identified risks. Therefore, the Council should invite Belgium to: (i) ensure that the budgetary target for 2007 is met and strengthen the pace of adjustment towards the MTO thereafter, including through a reduction of the recourse to one-off measures; and (ii) in the light of the high level of debt and the projected increase in age-related expenditure, to improve the long-term sustainability of public finances by at least achieving the MTO as well as by taking measures to further reduce the costs of ageing.

SPAIN

Spain submitted a new update of its stability programme on 22 December 2006, covering the period 2006-2009.

Based on a macroeconomic scenario that also appears plausible, the update aims at maintaining budgetary surpluses over the programme period that are more ambitious than in the 2005 update of the programme.

Spain has set itself a medium-term objective (MTO) of a balanced general government budget in structural terms (cyclically-adjusted and net of one-off and other temporary measures), which is more demanding than required by the debt ratio and average potential growth. That objective has already reached by a wide margin and is expected to be maintained throughout the programme period. Given that the risks are broadly balanced, the budgetary targets set out in the programme appear attainable.

Spain's debt to GDP is expected to be further reduced to 32% in 2009 from 43% in 2005 and slightly over 60% in 1999. This is a prudent policy given the expected costs from an ageing population. Considering the favourable budgetary position in the short to medium term, which partly offsets the projected considerable budgetary costs of an ageing population, Spain is at medium risk as regards the long-term sustainability of its public finances.

Overall, Spain's medium-term budgetary position is sound. The budgetary strategy provides a good example of fiscal policies conducted in compliance with the Stability and Growth Pact, also taking into account rising external imbalances and the existing inflation differential with the euro area.

Therefore, and particularly in view of the projected increase in age-related expenditure, the Council should invite Spain to further improve the long term sustainability of public finances with measures to contain the future impact of ageing spending.

The Commission recommendations for these Council Opinions are available at:

http://ec.europa.eu/economy_finance/about/activities/sgp/country/doctype/cr_en.htm

BELGIUM

Comparison of key macroeconomic and budgetary projections

 
 
2005
2006
2007
2008
2009
2010
Real GDP
(% change)
SP Dec 2006
1.2
2.7
2.2
2.1
2.2
2.2
COM Nov 2006
1.1
2.7
2.3
2.2
n.a.
n.a.
SP Dec 2005
1.4
2.2
2.1
2.3
2.2
n.a.
HICP inflation
(%)
SP Dec 2006
2.5
2.4
1.9
1.8
1.8
1.9
COM Nov 2006
2.5
2.4
1.8
1.7
n.a.
n.a.
SP Dec 2005
2.9
2.8
2.0
1.9
1.7
n.a.
Output gap
(% of potential GDP)
SP Dec 20061
-0.8
-0.3
-0.4
-0.4
-0.4
-0.3
COM Nov 20065
-1.0
-0.6
-0.6
-0.7
n.a.
n.a.
SP Dec 20051
-0.8
-0.6
-0.6
-0.5
-0.4
n.a.
General government balance
(% of GDP)
SP Dec 2006
0.1
-2.3*
0.0
0.3
0.5
0.7
0.9
COM Nov 2006
-2.3
-0.2
-0.5
-0.5
n.a.
n.a.
SP Dec 2005
0.0
0.0
0.3
0.5
0.7
n.a.
Primary balance
(% of GDP)
SP Dec 2006
4.3
1.9*
4.1
4.2
4.1
4.1
4.2
COM Nov 2006
1.9
3.9
3.4
3.2
n.a.
n.a.
SP Dec 2005
4.3
4.1
4.2
4.1
4.1
n.a.
Cyclically-adjusted balance
(% of GDP)
SP Dec 20061
0.8
-1.6*
0.2
0.5
0.7
0.9
1.1
COM Nov 2006
-1.7
0.1
-0.1
-0.1
n.a.
n.a.
SP Dec 20051
0.4
0.3
0.6
0.8
0.9
n.a.
Structural balance2
(% of GDP)
SP Dec 20063
n.a.
-0.4
0.1
n.a.
n.a.
n.a.
COM Nov 20064
0.2
-0.7
-0.2
-0.1
n.a.
n.a.
SP Dec 2005
0.0
-0.3
0.4
0.7
0.9
n.a.
Government gross debt
(% of GDP)
SP Dec 2006
91.5
93.2*
87.7
89.4*
83.9
85.6*
80.4
82.1*
76.6
78.3*
72.6
74.3*
COM Nov 2006
93.2
89.4
86.3
83.2
n.a.
n.a.
SP Dec 2005
94.3
90.7
87.0
83.0
79.1
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.
3One-off and other temporary measures taken from the programme (0.6% of GDP in 2006 and 0.4% in 2007; all deficit reducing). The programme does not provide information on the use of one-off measures in other years.
4One-off and other temporary measures taken from the Commission services’ autumn 2006 forecast (2.0% of GDP in 2005, deficit increasing; 0.8% in 2006 and 0.1 in 2007, both deficit reducing).
5Based on estimated potential growth of 2.2%, 2.3%, 2.3% and 2.2% respectively in the period 2005-2008.
* The deficit and debt figures in the programme for 2005 are not in line with ESA95. On 23 October 2006 Eurostat amended the deficit and debt data notified by Belgium in relation to the assumption by government (FIF/FSI - Fonds de l'infrastructure ferroviaire / Fonds voor spoorweginfrastructuur) of EUR 7400 million (2.5% of GDP) of the debt of the railway company SNCB/NMBS in 2005 (see Eurostat News Release N° 139/2006). According to ESA95 rules, the impact on the 2005 government deficit is of the same amount; the impact on the government debt at the end of 2005 amounts to EUR 5200 million (1.7% of GDP, taking into account a partial reimbursement occurred in that year). Data for 2005 marked with an asterisk are as amended by Eurostat. Debt data marked with an asterisk for years 2006 to 2010 have been 'mechanically' adjusted by the Commission services to comply with ESA95. This adjustment of debt figures is based on the technical assumption that the stock of FIF/FSI’s debts remains unchanged.
Source: 
Stability programme (SP); Commission services’ autumn 2006 economic forecasts (COM); Commission services’ calculations

SPAIN

Comparison of key macroeconomic and budgetary projections

 
 
 
2005
2006
2007
2008
2009
Real GDP
(% change)
SP Dec 2006
3.5
3.8
3.4
3.3
3.3
COM Nov 20067
3.5
3.8
3.4
3.3
n.a.
SP Dec 2005
3.4
3.3
3.2
3.2
n.a.
HICP inflation6
(%)
SP Dec 20066
3.4
3.5
2.7
2.6
2.5
COM Nov 2006
3.4
3.6
2.8
2.7
n.a.
SP Dec 20056
4.2
3.5
3.3
3.2
n.a.
Output gap
(% of potential GDP)
SP Dec 20061
-0.9
-0.9
-1.2
-1.5
-1.6
COM Nov 20065
-0.8
-0.9
-1.1
-1.3
n.a.
SP Dec 20051
-0.5
-0.8
-1.1
-0.7
n.a.
General government balance
(% of GDP)
SP Dec 2006
1.1
1.4
1.0
0.9
0.9
COM Nov 2006
1.1
1.5
1.1
0.9
n.a.
SP Dec 2005
1.0
0.9
0.7
0.6
n.a.
Primary balance
(% of GDP)
SP Dec 2006
2.9
3.0
2.5
2.3
2.2
COM Nov 2006
2.9
3.1
2.7
2.3
n.a.
SP Dec 2005
2.8
2.6
2.2
2.0
n.a.
Cyclically-adjusted balance
(% of GDP)
SP Dec 20061
1.5
1.8
1.5
1.6
1.6
COM Nov 2006
1.5
1.9
1.6
1.4
n.a.
SP Dec 20051
1.2
1.2
1.2
0.9
n.a.
Structural balance2
(% of GDP)
SP Dec 20063
1.5
1.8
1.5
1.6
1.6
COM Nov 20064
1.5
1.9
1.6
1.4
n.a.
SP Dec 2005
1.2
1.2
1.2
0.9
n.a.
Government gross debt
(% of GDP)
SP Dec 2006
43.1
39.7
36.6
34.3
32.2
COM Nov 2006
43.1
39.7
37.0
34.7
n.a.
SP Dec 2005
43.1
40.3
38.0
36.0
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 taken from the programme.
4One-off and other temporary measures taken from the Commission services’ autumn 2006 forecast.
5Based on estimated potential growth of 3,9%, 3,8%, 3,6% and 3,6% respectively in the period 2005-2008.
6Private consumption deflator instead of HICP.
7 According to first estimates, growth was 3.8% in 2006. The Commission services' interim forecast of 16 February 2007 projects growth of 3.7% in 2007.
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.


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