IP/08/256
Brussels, 19 February 2008
Commission assesses stability programmes of Ireland, Greece and Spain
Today the European Commission assessed the updated stability programmes[1] of Ireland, Greece and Spain. Ireland is encouraged to maintain a balanced budget in structural terms while letting the automatic stabilisers absorb the slowdown in the economy reflecting developments in the residential property sector and a deterioration of the economic outlook in key trading partners. The Greek programme envisages speeding up the reduction of the still large budget deficit, but the MTO of a balanced position in structural terms is not planned to be fully achieved within the programme period. In Spain, the budgetary position is sound with high general government surpluses above the MTO and a relatively low debt ratio. Its challenge is to foster productivity-enhancing expenditure to underpin a smooth adjustment of the economy. With regard to the long-term sustainability of public finances, Spain and Ireland are at medium risk and are invited to take further measures to contain the impact of ageing on spending, while Greece remains at high risk, which calls for continued budgetary consolidation and further reforms of pensions and health care systems.[2]
“Ireland is facing challenges in its transition to a period of lower but more sustainable economic growth. But, it must try and avoid a deterioration of the budgetary situation beyond that implied by automatic stabilisers. The economy is slowing down, but the growth prospects remain good and well above the euro area and EU averages. Ireland should also consider further pension reforms to curb the expected increase in age-related expenditure.
Greece should use any budgetary over-performance to further speed up the consolidation process to reach its objective of a balanced budget within the programme period. A strong fiscal consolidation path would help address the imbalances of the economy, notably persistent inflation, competitiveness losses and a large external deficit. In view of the level of debt – still one of the highest in the euro area - and the projected increase in age-related spending, the long-term sustainability of public finances needs to be addressed.
Spain is commended for maintaining ambitious targets despite a slowdown in economic growth. The high budgetary surpluses and low debt level offer room for cushioning possible lower tax revenues following the ongoing adjustment in the property sector. Fostering productivity-enhancing expenditure is crucial to underpin a smooth adjustment of the economy. It is also invited to further improve the long-term sustainability of its public finances,” said Economic and Monetary Affairs Commissioner Joaquín Almunia.
Today the Commission assessed the updated Stability Programmes of Ireland, Greece and Spain. It also assessed the Convergence Programmes of Denmark and Lithuania (see IP/08/257). Two groups of countries were already assessed in January and discussed at the 12 February EU Finance Ministers Council. On 13 February the Commission examined a third group of programmes. The programmes from the third and fourth group are expected to be discussed at the 4 March EU Finance Ministers Council.
IRELAND
Ireland submitted a new update of its stability programme on 5 December 2007, covering the period 2007-2010.
After years of budgetary surpluses which reached +2.9% in 2006, the Irish budgetary position moved closer to balance in 2007 and is expected to turn into a small deficit this year and remain there until the end of the programme.
This reflects an adjustment to more normal, but still very healthy, economic growth levels including thanks to a return to a more sustainable activity in the housing sector after a decade of buoyant economic growth. Ireland is also affected by the expected slowdown in the United States and in the United Kingdom, both significant trading partners.
The public debt remains well below the 60% reference value in the EU Treaty, which is necessary in view of the expected increase in pensions and other age-related costs.
In view of the Commission assessment and also in the light of the April 2007 Eurogroup orientations for fiscal policies, Ireland is invited to (i) keep to the MTO in 2008 and thereafter, by maintaining firm control over expenditures; (ii) in view of the significant projected increase in age-related expenditure, improve the long-term sustainability of public finances by implementing further pension reforms.
GREECE
Greece submitted a new update of its stability programme on 27 December 2007, covering the period 2007-2010.
The programme envisages speeding up the reduction of the still large budget deficit, in a context of strong growth, although the MTO of a balanced budget is not planned to be achieved within the programme period.
However, this consolidation, which relies on a significant increase in tax revenues throughout the programme horizon, is subject to risks as the underlying macroeconomic scenario is relatively favourable and the revenue-enhancing measures are not fully spelled out after 2008. Also, the reliance on results from the fight against tax evasion is significant and only partly backed up with reforms in tax collection. In addition, the planned cutbacks in some expenditure items (as a share of GDP) are not substantiated by specific measures and partly offset by plans to increase social payments.
Ensuring a strong fiscal consolidation path would help address the imbalances of the Greek economy, notably persistent inflation, competitiveness losses and a large external deficit. The level of debt which remains among the highest in the euro area, coupled with the projected increase in age-related spending, will affect negatively the long-term sustainability of public finances, which remains at high risk.
In view of the Commission assessment and also in the light of the April 2007 Eurogroup orientations for fiscal policies, Greece is invited to: (i) carry-out the envisaged adjustment towards the MTO, reduce the debt-to-GDP ratio accordingly, and use any budgetary over-performance to speed up the consolidation process to reach the MTO within the programme period; (ii) pursue the ongoing reforms of tax administration and continue improving the budgetary process by increasing its transparency, spelling out the budgetary strategy within a longer time perspective and effectively implementing mechanisms to monitor, control and improve the efficiency of primary expenditure; (iii) in view of the level of debt and the projected increase in age-related expenditure, improve the long-term sustainability of public finances by achieving the MTO, continuing the on-going reforms in the healthcare system and reforming the pension system; updated long-term projections for age-related expenditure should be produced as soon as possible.
Greece is also invited to improve compliance with the submission deadline for stability and convergence programmes specified in the code of conduct[3].
SPAIN
Spain submitted a new update of its stability programme on 21 December 2007, covering the period 2007-2010.
Spain has enjoyed comfortable budgetary surpluses since 2005. Its medium-term budgetary strategy remains sound with continued government surpluses above the MTO of a balanced budget and a relatively low debt ratio.
Growth is expected to remain well above the euro-area average throughout the programme period. But in light of the slowdown in the property sector and hence the economy, a careful assessment of the impact of tax cuts and/or expenditure increases is crucial to maintain a strong budgetary position and to ensure the long-term sustainability of public finances, which is at medium risk.
Fostering productivity-enhancing expenditure items, such as R&D, infrastructure and education, is also important to underpin a smooth adjustment of the economy in the light of external imbalances, the contraction of the housing sector and the existing inflation differential with the euro area.
The Spanish debt is expected to be at 30% in 2010 from around 36% in 2007 and nearly 60% at the beginning of the decade.
In view of the Commission assessment, while maintaining a strong budgetary
position Spain is invited to further improve the long-term sustainability of
public finances with additional measures to contain the future impact of ageing
on spending programmes.
The country-specific Commission recommendations for a
Council opinion on each programme are available at:
http://ec.europa.eu/economy_finance/thematic_articles/article11980_en.htm
IRELAND
Comparison of key macroeconomic and budgetary projections
|
|
2006
|
2007
|
2008
|
2009
|
2010
|
|
|
Real GDP
(% change) |
SP Dec 2007
|
5.7
|
4.8
|
3.0
|
3.5
|
4.1
|
|
COM Nov 2007
|
5.7
|
4.9
|
3.5
|
3.8
|
n.a.
|
|
|
SP Dec 2006
|
5.4
|
5.3
|
4.6
|
4.1
|
n.a.
|
|
|
HICP inflation
(%) |
SP Dec 2007
|
2.7
|
2.8
|
2.4
|
2.0
|
1.8
|
|
COM Nov 2007
|
2.7
|
2.8
|
2.2
|
2.0
|
n.a.
|
|
|
SP Dec 2006
|
2.7
|
2.6
|
2.0
|
1.7
|
n.a.
|
|
|
Output gap1
(% of potential GDP) |
SP Dec 2007
|
-0.2
|
-0.5
|
-1.3
|
-1.5
|
-0.7
|
|
COM Nov 20072
|
-0.5
|
-0.7
|
-1.2
|
-1.3
|
n.a.
|
|
|
SP Dec 2006
|
-1.2
|
-1.6
|
-2.2
|
-2.5
|
n.a.
|
|
|
Net lending/borrowing vis-à-vis the rest of the
world
(% of GDP) |
SP Dec 2007
|
-4.2
|
-4.4
|
-3.9
|
-3.5
|
-3.1
|
|
COM Nov 2007
|
-4.0
|
-4.5
|
-4.3
|
-4.2
|
n.a.
|
|
|
SP Dec 2006
|
-3.4
|
-4.3
|
-4.0
|
-3.5
|
n.a.
|
|
|
General government balance
(% of GDP) |
SP Dec 2007
|
2.9
|
0.5
|
-0.9
|
-1.1
|
-1.0
|
|
COM Nov 2007
|
2.9
|
0.9
|
-0.2
|
-0.6
|
n.a.
|
|
|
SP Dec 2006
|
2.3
|
1.2
|
0.9
|
0.6
|
n.a.
|
|
|
Primary balance
(% of GDP) |
SP Dec 2007
|
3.9
|
1.4
|
0.0
|
-0.1
|
0.0
|
|
COM Nov 2007
|
3.9
|
1.8
|
0.7
|
0.4
|
n.a.
|
|
|
SP Dec 2006
|
3.3
|
2.3
|
1.8
|
1.6
|
n.a.
|
|
|
Cyclically-adjusted balance1
(% of GDP) |
SP Dec 2007
|
3.0
|
0.7
|
-0.4
|
-0.5
|
-0.7
|
|
COM Nov 2007
|
3.1
|
1.2
|
0.3
|
0.0
|
n.a.
|
|
|
SP Dec 2006
|
2.8
|
1.8
|
1.8
|
1.6
|
n.a.
|
|
|
Structural balance3
(% of GDP) |
SP Dec 2007
|
2.9
|
0.5
|
-0.4
|
-0.5
|
-0.7
|
|
COM Nov 2007
|
3.1
|
1.2
|
0.3
|
0.0
|
n.a.
|
|
|
SP Dec 2006
|
2.7
|
1.8
|
1.8
|
1.6
|
n.a.
|
|
|
Government gross debt
(% of GDP) |
SP Dec 2007
|
25.1
|
25.1
|
25.9
|
27.6
|
28.7
|
|
COM Nov 2007
|
25.1
|
25.2
|
26.9
|
28.5
|
n.a.
|
|
|
SP Dec 2006
|
25.1
|
23.0
|
22.4
|
21.9
|
n.a.
|
|
|
Notes:
|
|
|
|
|
|
|
|
1Output gaps and cyclically-adjusted balances according to the
programmes as recalculated by Commission services on the basis of the
information in the programmes.
|
||||||
|
2Based on estimated potential growth of 5.9%, 5.2%, 4.1% and
3.8% respectively in the period 2006-2009.
|
||||||
|
3Cyclically-adjusted balance excluding one-off and other
temporary measures. One-off and other temporary measures are 0.1% of GDP in 2006
and 0.2% in 2007 (all surplus-reducing) according to the most recent programme
and 0.0% of GDP in 2006 and 0.0% in 2007 in the Commission services' autumn
forecast. According to information presented by the national authorities, they
represent the impact of (i) additional revenue secured through special
investigations by the tax authorities, and (ii) the payment of an exit tax
associated with special savings accounts (SSIAs). These one-offs were excluded
in the autumn forecast in the absence of detailed information. No information on
one-offs in the period 2008-2010 is provided in the programme.
|
||||||
|
Source:
|
|
|
|
|
|
|
|
Stability programme (SP); Commission services’ autumn 2007
economic forecasts (COM) which were completed on a pre-budget basis; Commission
services’ calculations (based on pre-budget estimates)
|
||||||
GREECE
Comparison of key macroeconomic and budgetary projections1
|
|
2006
|
2007
|
2008
|
2009
|
2010
|
||
|
Real GDP
(% change) |
SP Dec 2007
|
4.2
|
4.1
|
4.0
|
4.0
|
4.0
|
|
|
COM Nov 2007
|
4.3
|
4.1
|
3.8
|
3.7
|
n.a.
|
||
|
SP Dec 2006
|
4.0
|
3.9
|
4.0
|
4.1
|
n.a.
|
||
|
HICP inflation
(%) |
SP Dec 2007
|
3.3
|
2.9
|
2.8
|
2.7
|
2.6
|
|
|
COM Nov 2007
|
3.3
|
2.8
|
3.1
|
3.1
|
n.a.
|
||
|
SP Dec 2006
|
3.3
|
3.3
|
2.8
|
2.6
|
n.a.
|
||
|
Output gap2
(% of potential GDP) |
SP Dec 2007
|
0.8
|
0.8
|
0.8
|
0.9
|
1.1
|
|
|
COM Nov 20073
|
1.1
|
1.3
|
1.2
|
1.2
|
n.a.
|
||
|
SP Dec 2006
|
1.0
|
0.9
|
1.1
|
1.5
|
n.a.
|
||
|
Net lending/borrowing vis-à-vis the rest of the
world
(% of GDP) |
SP Dec 2007
|
-12.3
|
-12.8
|
-12.7
|
-12.5
|
-12.2
|
|
|
COM Nov 2007
|
-9.6
|
-9.4
|
-9.5
|
-9.4
|
n.a.
|
||
|
SP Dec 2006
|
-8.9
|
-7.9
|
-7.6
|
-7.3
|
n.a.
|
||
|
General government balance
(% of GDP) |
SP Dec 2007
|
-2.5
|
-2.7
|
-1.6
|
-0.8
|
0.0
|
|
|
COM Nov 2007
|
-2.5
|
-2.9
|
-1.8
|
-1.8
|
n.a.
|
||
|
SP Dec 2006
|
-2.6
|
-2.4
|
-1.8
|
-1.2
|
n.a.
|
||
|
SP Dec 2006 adj
|
-2.4
|
-2.2
|
-1.6
|
-1.1
|
n.a.
|
||
|
Primary balance
(% of GDP) |
SP Dec 2007
|
1.6
|
1.2
|
2.4
|
3.1
|
3.8
|
|
|
COM Nov 2007
|
1.6
|
1.0
|
2.1
|
2.0
|
n.a.
|
||
|
SP Dec 2006
|
2.0
|
2.0
|
2.4
|
2.9
|
n.a.
|
||
|
Cyclically-adjusted balance2
(% of GDP) |
SP Dec 2007
|
-2.8
|
-3.1
|
-1.9
|
-1.2
|
-0.5
|
|
|
COM Nov 2007
|
-3.0
|
-3.4
|
-2.4
|
-2.3
|
n.a.
|
||
|
SP Dec 2006
|
-3.0
|
-2.8
|
-2.3
|
-1.8
|
n.a.
|
||
|
Structural balance4
(% of GDP) |
SP Dec 2007
|
-3.2
|
-2.8
|
-2.0
|
-1.2
|
-0.5
|
|
|
COM Nov 2007
|
-3.5
|
-3.1
|
-2.4
|
-2.3
|
n.a.
|
||
|
SP Dec 2006
|
-3.4
|
-2.8
|
-2.3
|
-1.8
|
n.a.
|
||
|
Government gross debt
(% of GDP) |
SP Dec 2007
|
95.3
|
93.4
|
91.0
|
87.3
|
82.9
|
|
|
COM Nov 2007
|
95.3
|
93.7
|
91.1
|
88.8
|
n.a.
|
||
|
SP Dec 2006
|
104.1
|
100.1
|
95.9
|
91.3
|
n.a.
|
||
|
SP Dec 2006 adj
|
95.0
|
91.3
|
87.5
|
83.3
|
n.a.
|
||
|
Notes:
|
|
|
|
|
|
|
|
|
1The December 2007 update uses the official revised GDP (upward
revision by 9.6%), according to the Eurostat press release of 22 October 2007
and are therefore not directly comparable to the figures of the December 2006
update. In order to allow for a meaningful comparison, the rows “SP Dec
2006 adj.” show the targets in the December 2006 update as recalculated to
take into account the denominator effect of the revised GDP. The Commission
services’ autumn 2007 forecast is based on an estimation of the revised
GDP components, due to the lack of official statistical data on National
Accounts by the cut-off date of the forecast.
|
|||||||
|
2Output gaps and cyclically-adjusted balances according to the
programmes as recalculated by Commission services on the basis of the
information in the programmes.
|
|||||||
|
3Based on estimated potential growth of 3.9%, 3.8% and 3.7%
2007-2009.
|
|||||||
|
4Cyclically-adjusted balance excluding one-off and other
temporary measures. One-off and other temporary measures are 0.4% of GDP in
2006, 0.3% in 2007 and 0.1% in 2008, deficit-reducing in 2006 and 2008, but
deficit increasing in 2007, according to the most recent programme and 0.4% of
GDP in 2006 and 0.3% in 2007, deficit-reducing in 2006 and deficit increasing in
2007 according to the Commission services' autumn forecast.
|
|||||||
|
|
|
|
|
|
|
|
|
|
Source:
|
|
|
|
|
|
|
|
|
Convergence programme (SP); Commission services’ autumn 2007
economic forecasts (COM); Commission services’ calculations
|
|||||||
SPAIN
Comparison of key macroeconomic and budgetary projections
|
|
|
2006
|
2007
|
2008
|
2009
|
2010
|
|
Real GDP
(% change) |
SP Dec 2007
|
3.9
|
3.8
|
3.1
|
3.0
|
3.2
|
|
COM Nov 2007
|
3.9
|
3.8
|
3.0
|
2.3
|
n.a.
|
|
|
SP Dec 2006
|
3.8
|
3.4
|
3.3
|
3.3
|
n.a.
|
|
|
HICP inflation
(%) |
SP Dec 20074
|
3.4
|
2.7
|
3.3
|
2.7
|
2.8
|
|
COM Nov 2007
|
3.6
|
2.6
|
2.9
|
2.7
|
n.a.
|
|
|
SP Dec 20064
|
3.5
|
2.7
|
2.6
|
2.5
|
n.a.
|
|
|
Output gap1
(% of potential GDP) |
SP Dec 2007
|
-1.1
|
-0.9
|
-1.4
|
-1.9
|
-1.6
|
|
COM Nov 20072
|
-0.6
|
-0.5
|
-0.9
|
-1.8
|
n.a.
|
|
|
SP Dec 2006
|
-0.9
|
-1.2
|
-1.5
|
-1.6
|
n.a.
|
|
|
Net lending/borrowing vis-à-vis the rest of the
world
(% of GDP) |
SP Dec 2007
|
-8.1
|
-9.0
|
-8.9
|
-8.8
|
-8.7
|
|
COM Nov 2007
|
-8.1
|
-8.7
|
-9.1
|
-9.3
|
n.a.
|
|
|
SP Dec 2006
|
-7.5
|
-8.2
|
-8.4
|
-8.7
|
n.a.
|
|
|
General government balance
(% of GDP) |
SP Dec 2007
|
1.8
|
1.8
|
1.2
|
1.2
|
1.2
|
|
COM Nov 2007
|
1.8
|
1.8
|
1.2
|
0.6
|
n.a.
|
|
|
SP Dec 2006
|
1.4
|
1.0
|
0.9
|
0.9
|
n.a.
|
|
|
Primary balance
(% of GDP) |
SP Dec 2007
|
3.4
|
3.4
|
2.7
|
2.6
|
2.6
|
|
COM Nov 2007
|
3.5
|
3.4
|
2.7
|
2.1
|
n.a.
|
|
|
SP Dec 2006
|
3.0
|
2.5
|
2.3
|
2.2
|
n.a.
|
|
|
Cyclically-adjusted balance1
(% of GDP) |
SP Dec 2007
|
2.3
|
2.2
|
1.8
|
2.0
|
1.9
|
|
COM Nov 2007
|
2.1
|
2.0
|
1.6
|
1.4
|
n.a.
|
|
|
SP Dec 2006
|
1.8
|
1.5
|
1.6
|
1.6
|
n.a.
|
|
|
Structural balance3
(% of GDP) |
SP Dec 2007
|
2.3
|
2.2
|
1.8
|
2.0
|
1.9
|
|
COM Nov 2007
|
2.1
|
2.0
|
1.6
|
1.4
|
n.a.
|
|
|
SP Dec 2006
|
1.8
|
1.5
|
1.6
|
1.6
|
n.a.
|
|
|
Government gross debt
(% of GDP) |
SP Dec 2007
|
39.7
|
36.2
|
34.0
|
32.0
|
30.0
|
|
COM Nov 2007
|
39.7
|
36.3
|
34.6
|
33.0
|
n.a.
|
|
|
SP Dec 2006
|
39.7
|
36.6
|
34.3
|
32.2
|
n.a.
|
|
|
Notes:
|
|
|
|
|
|
|
|
1Output gaps and cyclically-adjusted balances according to the
programmes as recalculated by Commission services on the basis of the
information in the programmes.
|
||||||
|
2Based on estimated potential growth of 3.5%, 3.7%, 3.4% and
3.2% respectively in the period 2006-2009.
|
||||||
|
3There are no one-off and other temporary measures in the most
recent programme and Commission services’ autumn forecast.
|
||||||
|
4Private consumption deflator.
|
|
|
|
|
|
|
|
Source:
|
|
|
|
|
|
|
|
Stability programme (SP); Commission services’ autumn 2007
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.
[2] The analysis of long-term sustainability of public finances takes into account the current level of debt, the current budget deficit/surplus and the expected costs arising from an ageing population assuming no policy changes.
[3] Late submissions affect the effectiveness and consistency of the multilateral surveillance process.
