Brussels, 15 June 2010
Commission recommends to open excessive deficit procedures for Cyprus, Denmark and Finland
The European Commission today concluded on the existence of excessive deficits in Cyprus, Denmark and Finland and recommended deadlines for their correction to the Council. These steps, taken under Article 126(5-7) of the Treaty, represent the follow-up of the reports under Article 126(3) that the Commission presented on 12 May.
"The entry into the excessive deficit procedure of these countries, which until recently had surpluses, shows the severity of the economic and financial crisis we have gone through. Part of the deterioration comes as a consequence of the stimulus measures taken under the European Economic Recovery Plan (EERP), which has been instrumental in containing the crisis. But now it is time to focus on returning to sound public finances. The need for fiscal consolidation varies per country, however, and the deadlines and fiscal efforts we recommend today reflect these differences", said Economic and Monetary Affairs Commissioner Olli Rehn.
According to data notified by the Cypriot authorities in April 2010, the general government deficit in Cyprus reached 6.1% of GDP in 2009, while the government debt is expected to reach 62% of GDP in 2010, thus breaching the 60% reference value of the Treaty. While the deficit can be qualified as exceptional, as it results from a severe economic downturn, the excess over the reference value can neither be qualified as close to 3% of GDP or temporary. The Commission recommends to the Council to set a deadline of 2012 for correction. In particular, Cyprus should reduce the 2010 deficit to below 6.0% of GDP and ensure an annual structural adjustment of 1¾% of GDP over the period 2010-2012.
According to data notified by the Danish authorities in April 2010, the general government deficit in Denmark is planned to reach 5.4% of GDP in 2010. While the deficit can be qualified as exceptional in view of the economic downturn, the excess over the reference value can neither be qualified as close to 3% of GDP or temporary. The Commission recommends to the Council to set a deadline of 2013 for correction, with budgetary consolidation beginning in 2011. In particular, Denmark should implement the fiscal measures in 2010 as planned and ensure an annual structural adjustment of ½% of GDP over the period 2011-2013.
According to data notified by the Finnish authorities in April 2010, the general government deficit is planned to rise to 4.1% of GDP in 2010. The deficit can be qualified as exceptional, resulting from the severe economic downturn, and temporary, but not close to the reference value. The Commission recommends to the Council to set a deadline of 2011 for correction. To this end, Finland should implement the fiscal measures in 2010 as planned and ensure a structural adjustment of at least ½% of GDP in 2011.
The Ecofin Council is expected to decide on the recommendations at the upcoming meeting of 13 July. The Member States concerned will then have six months to indicate what action they have taken or plan to take to progressively reduce the budget deficit.
Background: the excessive deficit procedure
The excessive deficit procedure, representing the corrective arm of the Stability and Growth Pact, is regulated by Article 126 of the Treaty and is further clarified in Council Regulation (EC) No 1467/97. Revised in 2005, the Pact allows the economic situation to be taken into account when making recommendations on the timetable for the correction.
When a Member State reports an actual or a planned deficit higher than 3% of GDP, the Commission addresses a report under Article 126(3) to the Economic and Financial Committee (EFC), which formulates an opinion on it under Article 126(4). Next, if the Commission considers that an excessive deficit exists or may occur, it addresses and opinion to the Member State under Article 126(5) and informs the Council. Simultaneously, the Commission will also propose to the Council to decide that an excessive deficit exists under Article 126(6) and recommend the Council under Article 126(7) to issue recommendations to correct the excessive deficit by a given deadline.
All documents relating to excessive deficit procedures are available at: http://ec.europa.eu/economy_finance/sgp/deficit/countries/index_en.htm