Brussels, 7 March 2007
Having examined their updated stability programmes, 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 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 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:
Comparison of key macroeconomic and budgetary projections
Comparison of key macroeconomic and budgetary projections
 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.