Sélecteur de langues
Brussels, 24 June 2009
Commission assesses remainder Stability and Convergence Programmes; takes EDP steps for Hungary, Lithuania, Malta, Poland and Romania
Today the European Commission examined the updated Stability and Convergence Programmes 1 (SCPs) of Austria, Belgium, Romania, Slovenia and Slovakia, the last of the 2009 vintage. As for the other EU countries, budgetary positions are estimated to deteriorate markedly, reflecting the ongoing recession and the economic stimulus packages adopted in line with the European Economic Recovery Plan (EERP) that called for timely and targeted fiscal measures in Member States with fiscal room for manoeuvre. In all five countries, the specified budgetary targets are also found to be subject to downside risks. Based on the April notifications of the fiscal outcomes for 2008, the Commission also concludes that Lithuania, Malta, Poland and Romania are running excessive deficits in the sense of Article 104.7 of the EU Treaty and recommends deadlines for their correction. The Commission also recommends to the Council to adopt a revised recommendation under Article 104.7 setting a new deadline for the correction of the deficit in Hungary. The assessments and recommendations are based on the Commission's Spring forecast and on other data/information. The proposed deadlines take into account the starting fiscal position and the scope for manoeuvre in line with the EERP, the economic outlook, macroeconomic imbalances and financing conditions. The Ecofin Council is expected to discuss the recommendations at the upcoming July gathering. At that point, the Member States concerned will have six months to define and start implementing measures to correct the excessive deficit. .
" National budgetary positions in the EU and elsewhere have deteriorated considerably in the last year and will deteriorate even more this year on account of the recession and of the stimulus packages appropriately put in place, when room for manoeuvre exists, to limit the negative impact on activity and employment. To limit the costs of the debt for generations present and future, it is crucial that governments devise an adjustment path whereby they commit to correct public deficits from the moment the economy starts to recover, which is expected to happen gradually starting 2010. The Stability and Growth Pact provides the framework for this exit strategy and a return to sound and sustainable public finances in the medium-to-long term," said Economic and Monetary Affairs Commissioner Joaquín Almunia.
1. Assessment of Stability and Convergence Programmes
After a budget deficit of only 0.4% of GDP in 2008, Austria faces a severe deterioration in its public finances due to the global economic and financial crisis and the budgetary measures adequately taken in line with the EERP. The updated Stability Programme foresees a budget deficit of 3.5% of GDP in 2009 and of 4.7% over 2010-2012 before edging down to 3.9% in 2013. This is subject to downside risks.
Benefiting from the fiscal space created during the boom years and from the absence of external imbalances, the Austrian government introduced sizeable fiscal stimulus of around 1¼% and 1¾% of GDP for 2009 and 2010 that include a mix of revenue and expenditure instruments. The aim is to bolster private incomes, avoid lay-offs, strengthen human skills by providing further vocational training, and provide incentives for investment and support to the automotive sector.
In view of the assessment, Austria is invited to (i) implement the stimulus measures, but reverse the expansionary fiscal stance once the economic crisis subsides so as to return to a consolidation path compatible with the long-term sustainability of public finances, (ii) substantiate the government's intention mentioned in the programme to implement measures deemed necessary to achieve a general government deficit below the 3% of GDP reference value by 2012 at the latest and (iii) further improve the budgetary framework to strengthen fiscal discipline at all levels of government through enhanced transparency and accountability notably by aligning legislative, administrative and financing responsibilities between the different levels of government.
Following the sharp contraction of the Belgian economy in the last quarter of 2008 and the first of 2009, the updated stability programme foresees a deterioration of the budget deficit from 1.2% of GDP in 2008 to 3.4% of GDP in 2009 and 4% of GDP in 2010. Afterwards, the programme foresees a reduction to below the 3% of GDP reference value by 2012 and to 1.5% of GDP in 2013. The government debt-to-GDP ratio, which rose to 89.6% in 2008 as a result of the measures to stabilise the financial system, is expected to continue its upward movement, reaching 95% in 2010, before gradually declining thereafter, to 92% in 2013. The absence of crucial information in the programme, such as the expenditure and revenue ratios, has hampered the possibility to assess the credibility of the deficit and debt targets in the programme.
The deficit and debt targets are subject to considerable downside risk over the entire programme period, stemming from favourable macroeconomic assumptions and the lack of underlying measures. Moreover, also in the light of the debt dynamics and the long-term sustainability of public finances, the programme lacks ambition regarding the decisive correction of the deficit as the economic situation improves.
On the basis of the Commission's assessment, Belgium is invited to: (i) submit, by 20 September at the latest, an update of the programme including a well founded medium-term budgetary strategy and improve compliance with the data requirements of the code of conduct especially regarding compulsory data; (ii) implement the stimulus measures in line with the EERP as planned while avoiding a further deterioration of the structural balance in 2009 and reverse the expansionary fiscal stance as from 2010 when the economy is expected to improve so as to return to a consolidation path compatible with the long-term sustainability of public finances; (iii) improve the quality of public finances by adopting a more stringent budgetary framework, encompassing binding, multi-annual expenditure ceilings and budgetary agreements among the different government tiers, including the establishment of enforcement mechanisms to ensure the respect of the fiscal targets; and (iv) undertake structural reforms of the social security system, the labour market and product markets to enhance potential growth, increase the employment rate and reduce the budgetary impact of ageing, in order to improve the long-term sustainability of public finances.
The global economic downturn has resulted in a sharp drop of private capital flows to Romania, leading to a significant deceleration of activity since the fourth quarter of 2008. The Romanian programme assumes GDP to contract by 4% for the whole of 2009, followed by zero growth in 2010 and 2.6% in 2011. Considering the absence of room for fiscal manoeuvre and the need to correct large fiscal and external imbalances, Romania envisages a restrictive fiscal stance between 2009 and 2011.
In line with the commitments made by Romania in the framework of the EU balance of payment assistance, the authorities envisage to undertake a significant fiscal consolidation effort, targeting a deficit of 5.1% of GDP in 2009, with the aim of reducing it to below 3% of GDP by 2011. Furthermore, the programme foresees measures to improve fiscal governance, enhance financial sector regulation and supervision and step up structural reform. However, the budgetary outcomes are subject to downside risks, taking into account the uncertainty related to the macroeconomic scenario in 2009, the effective implementation of the planned expenditure measures and the lack of information on concrete measures needed to underpin fiscal consolidation after 2009.
In view of this assessment and taking into account the policy invitations addressed to Romania to correct the excessive deficit under Article 104(7) of the Treaty (see below), as well as to ensure sustainable convergence, and in line with the economic policy measures envisaged under the economic programme supported by Community balance-of-payments assistance, Romania is invited to: (i) ensure the correction of the excessive deficit by 2011; to this effect, implement the fiscal measures as planned in the February 2009 budget and the April 2009 amended budget, especially in the area of public sector wages and pension reform; take further corrective action if needed to achieve the 2009 deficit target in order to ensure compliance with the commitments undertaken under the programme supported by EC balance of payments assistance; and specify measures to buttress the envisaged reduction of the deficit in 2010 and 2011, in particular those underpinning the planned reduction of the public wage bill; (ii) undertake concrete steps towards the envisaged strengthening of fiscal governance and transparency, in particular by setting up a binding medium-term budgetary framework, establishing an independent fiscal council, introducing limits on budgetary revisions during the year and laying-out fiscal rules as well as restructuring the public compensation system, including pay and bonuses; in the area of tax administration, improve the efficiency of revenue collection through the reform of tax administration and a broadening of the tax base; (iii) accelerate the reform of the pension system (in particular with respect to the indexation of pensions and the retirement age) to curb the substantial increase in age-related expenditures and reduce the risks to the sustainability of public finances and improve the effectiveness and efficiency of healthcare spending; and (iv) strengthen the supply side of the economy by making tangible progress with the implementation of the structural reforms, notably by enhancing the efficiency and effectiveness of public administration, improving the business environment, tackling undeclared work and by increasing the absorption and improving the use of EU funds.
According to the programme update, the deficit is targeted to widen significantly in 2009, to 5.1% of GDP, reflecting the working of the automatic stabilizers and various discretionary measures as well as the strong dynamics of social transfers and compensation of employees. Thereafter, the deficit is projected to narrow gradually, especially in 2010, but to remain above the 3% of GDP reference value. Assessed against currently available information, the macroeconomic scenario for 2009 and 2010 appears favourable and the budgetary outlook throughout the programme period seems subject to downside risks. In response to the EERP, Slovenia adopted stimulus measures that , together with tax relief decided before the onset of the crisis, should support the economy. They focus on stemming the deterioration in the labour market and enhancing growth potential and competitiveness.
Going forward, key challenges for Slovenia are the reversal of the fiscal stimulus, the need to improve the long-term sustainability of public finances, for which Slovenia is at high risk, and to enhance competitiveness. In view of the assessment, Slovenia is invited to: (i) implement the stimulus measures in 2009 in line with the EERP; (ii) start reversing the fiscal stimulus as planned in the programme in 2010 and strengthen the adjustment foreseen for 2011 in the light of the assumed pick-up in economic growth; in so doing, keep tight control over government expenditure; (iii) in view of the projected increase in age-related expenditure, improve the long-term sustainability of public finances by further reforming the pension system, in particular with a view to encouraging longer working lives
The stability programme of Slovakia targets a budget deficit of 3.0%, 2.9% and 2.2% GDP in 2009, 2010 and 2011 respectively. These budgetary projections are based on markedly favourable macroeconomic assumptions. Achieving medium-term budgetary targets will require more significant structural consolidation after 2009 than envisaged in the programme. The consolidation effort needs to be backed up by concrete expenditure measures. In addition, the deterioration of public finances presents a risk also for long-term sustainability. In this context, it is crucial to keep stable rules for the fully-funded pension pillar and therefore to avoid measures that create uncertainty for the business strategy of pension funds. Slovakia adopted stimulus measures in line with the EERP. They are targeted at disadvantaged groups and in most cases temporary.
In view of the assessment, Slovakia is invited to: (i) implement the anti-crisis measures in line with the EERP as planned; (ii) ensure consolidation from 2010 onwards as the economy recovers and back up the budgetary strategy with specific measures for reducing expenditure from 2010 onwards. This should be supported by the introduction of legally binding expenditure ceilings for the general government to ensure fiscal discipline in a less buoyant revenue scenario; (iii) ensure stable rules for the fully-funded pension pillar, given the upcoming challenges of an ageing population, in order to improve the long-term sustainability of public finance.
2. Excessive deficit procedures
An excessive deficit procedure was opened in July 2004 right after EU accession that recommended the country to bring the deficit below 3% of GDP by 2008. The recommendation was repeated in March 2005 and again in October 2006 in view of the inadequate action taken by Hungary. In October 2006, the Council also extended the deadline for the correction of the excessive deficit to 2009.
Since mid-2006 Hungary has made marked progress to correct its fiscal imbalances. The nominal deficit targets were overachieved by large margins as the deficit was reduced from over 9% of GDP in 2006 to 3.4% in 2008. However, the impact of the current financial crisis has heavily affected the Hungarian economy. As a response, the authorities adopted a new economic policy programme in October 2008, supported by an international financial assistance package of €20 billion, chiefly from the EU and the IMF 2 . But in spite of additional corrective measures taken in several rounds, because of the significant deterioration in the economic outlook, with GDP now expected to contract by around 6½% this year, the 2009 deadline is no longer achievable. Given that the country has taken effective action but the deficit outcome was affected strongly by unexpected adverse economic developments, the revised Pact provides for the possibility to issue a revised recommendation, which can extend the deadline for the correction.
Against this background, the Commission recommends to the Council to ask the Hungarian Government to correct the excessive deficit by 2011, which seems to be appropriate in view of the exceptional situation characterised by the depth and length of the current recession and the fragility of the financial sector. This should be done by limiting the deterioration of the fiscal position in 2009 as well as by rigorously implementing the necessary consolidation measures to ensure a renewed decline of the headline deficit starting from 2010, with an increased reliance on structural steps. Moreover, Hungary will be requested to spell out and adopt in a timely manner additional consolidation measures which will be necessary to achieve the correction of the excessive deficit by 2011. The budgetary adjustment also needs to be framed within a comprehensive structural reform strategy and supported by the rigorous implementation of the recently adopted fiscal responsibility law.
According to data notified by the Lithuanian authorities in April 2009, the general government deficit reached 3.2% of GDP in 2008. Although the deficit was close to the 3% Treaty reference value, the excess was not considered as being due to exceptional circumstances nor considered to be temporary. Based on available information, the Commission services' spring 2009 forecast projects that in the absence of new policy measures public finances would deteriorate significantly further in 2009 and 2010 (the deficit would reach 5.4% of GDP and 8.0% of GDP respectively).
In view of the very weak economic situation in Lithuania and the size of the deficit, a 2011 deadline appears warranted. This implies an average annual fiscal effort of at least 1½% of GDP over the period 2009-2011. In order to achieve this target, the Lithuanian authorities should implement the fiscal measures included in the 2009 budget and in the supplementary 2009 budget. Moreover, Lithuania is recommended to consider further measures to limit the deterioration of public finances in 2009 and to devise additional consolidation measures for 2010, so as to achieve this fiscal consolidation path. Lithuania is also recommended to strengthen fiscal governance and transparency, by enhancing the medium-term budgetary framework and reinforcing expenditure discipline, as well as to improve the monitoring of the budget implementation throughout the year.
Following the submission of data by the Maltese authorities showing a deficit of 4.7% of GDP in 2008, the Commission adopted on 13 May a report under Article 104(3) of the Treaty as a first step in the excessive deficit procedure. The report concluded that neither the deficit nor the debt criterion in the Treaty is fulfilled.
The Commission recommends to the Council that Malta puts an end to the excessive deficit situation by 2010 in a credible and sustainable manner by rigorously implementing the budgetary measures planned for 2009 while avoiding any further deterioration in public finances. For 2010, new consolidation measures are called for. The recommendation also invites the Maltese authorities to ensure that budgetary consolidation towards the medium-term objective of a balanced budgetary position in structural terms is sustained after the excessive deficit has been corrected. To this end, the Maltese authorities are invited to spell out the measures necessary to achieve a lasting consolidation and to strengthen the medium-term focus of the budgetary framework.
According to data notified by the Polish authorities in April 2009, the general government deficit reached 3.9% of GDP in 2008, thus exceeding the 3% reference value. This was significantly more than the expected 2008 outturn of 2.7% presented in the December convergence programme. In the notification, the Polish authorities presented a revised deficit target of 4.6% for 2009 whereas the spring 2009 Commission services’ forecast is 6.6% due to a less optimistic macroeconomic scenario and under a “no policy change” assumption. The Polish authorities have recently revised downwards the growth forecast for this year and announce that the general government deficit may significantly exceed the 4.6% of GDP planned for the current year in the Spring 2009 EDP notification. The Commission report under Article 104(3) published on 13 May considered that the deficit was not close to the 3% of GDP reference value and that the excess over the reference value could not be qualified as exceptional or temporary within the meaning of the Treaty and the Stability and Growth Pact.
The existence of special circumstances, largely resulting from the global economic crisis, which entailed a collapse of exports, a sharp tightening of mortgage loans and corporate loans as well as the ongoing structural shift in the economy, which also contributes to quickly rising unemployment rates, authorises the Council to allow the correction of the excessive deficit in a medium term rather than in the year following the initiation of the excessive deficit procedure. According to the Commission recommendation to the Council, the Polish authorities should put an end to the excessive deficit situation by 2012 at the latest. This implies an average annual fiscal effort of about 1¼ -1½ percentage points of GDP starting in 2010. To minimise the recession and, at the same time, ensure that long-term growth is sustained, Poland should implement the fiscal stimulus measures in 2009 as planned, in particular the public investment plan, while avoiding any further deterioration in public finances. Credible and sustainable correction of the excessive deficit requires (i) spelling out rapidly the detailed measures that are necessary to achieve the consolidation path allowing to contain primary current expenditure over the coming years, especially in the areas of social spending and (ii) strengthening the binding nature of Poland’s medium-term budgetary framework, for example by means of introducing a legal ceiling on the growth of primary current expenditure, as well as improving the monitoring of the budget execution throughout the year.
The budget deficit reached 5.4% in 2008 in Romania (see above). This reflects mostly spending slippages, notably on public wages and social benefits, as well as overly optimistic revenue projections and, to a lesser extent, a sudden drop in revenue collection in the last quarter of 2008 owing to the economic slowdown. Rising fiscal deficits have also been due to a lack of fiscal consolidation efforts when economic conditions were favourable. As from 2009, fiscal policy aims to correct the budgetary deficit, in line with the authorities' economic programme adopted in the framework of the international financial assistance extended to Romania.
The Commission recommends that Romania corrects the excessive deficit by 2011 in view of the large imbalances and the economic and financial situation. The proposed timing is in line with the fiscal targets agreed in the framework of the international financial assistance.
To this end, the Romanian authorities are invited to (a) implement the fiscal measures in 2009 as planned in the February 2009 budget and the April 2009 amended budget, especially in the area of public sector wages and pension reform and adopt and implement further measures, if necessary, to achieve the 2009 deficit target; (b) ensure an average annual fiscal effort of at least 1½% of GDP starting with 2010 and (c) spell out the detailed measures that are necessary to achieve the consolidation path beyond 2009 and implement the envisaged corrective measures rigorously; in particular, the consolidation should be expenditure driven and measures should concentrate on containing current expenditure, notably with respect to the public sector wage bill; seize any opportunity to accelerate the reduction of the deficit; stand ready to adopt the additional measures which may be necessary to achieve the correction of the excessive deficit by 2011.
All related documents are available at:
Comparison of key macro-economic and budgetary projections
Comparison of key macroeconomic and budgetary projections
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, 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 c onvergence 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.
For more recent developments see: