Brussels, 15 June 2010
Commission concludes effective action was taken by twelve Member States in excessive deficit procedure
The European Commission today assessed the action taken by Belgium, the Czech Republic, Germany, Ireland, Spain, France, Italy, the Netherlands, Austria, Portugal, Slovenia and Slovakia in response to the Council recommendations of 2 December 2009 relating to the correction of their respective excessive government deficits. The Commission concluded that the authorities have acted in accordance with the recommendations.
"The current economic circumstances call for a coordinated fiscal exit strategy in order to face both the necessity of a decisive fiscal consolidation and the need to sustain the nascent economic recovery. The current budgetary targets, including the revised targets of Spain and Portugal, appear to ensure an appropriate overall fiscal stance for the EU, but there is an evident need to advance more forcefully on the structural agenda. The need to coordinate better and more effectively reinforces our call for reinforced economic governance in Europe ", said Economic and Monetary Affairs Commissioner Olli Rehn.
For all 12 Member States concerned by the Communication, the Excessive Deficit Procedures deadlines and fiscal efforts were fixed in accordance with the fiscal exit strategy principles as agreed by the EU Council in October. All recommendations were framed in a medium-term framework due to the existence of exceptional economic circumstances and also in view of the sheer size of the consolidation needs. For the same reason, the fiscal effort was defined as an annual average.
In line with the Pact, the Council fixed a review clause to assess whether first progress were made towards consolidation on 2 June.
France, Ireland and Spain were put in EDP in April 2009 on the basis of a breach of the 3% threshold in 2008. France and Spain were given up to 2012 to correct their excessive deficit, while the Irish deadline was fixed to 2013. After 6-months, the deadlines for these countries were postponed by 1 year as adverse economic conditions made them impossible to be reached. Thus, France and Spain were recommended to correct by 2013 and Ireland by 2014 implying annual average efforts ranging from 1¼% to 2% of GDP.
Austria, Belgium, the Czech Republic, Germany, Italy, the Netherlands, Portugal and Slovenia. were put in EDP in December 2009 on the basis of a breach of the reference value in 2009. Austria, Germany and the Netherlands, having fiscal space, were asked to start consolidating in 2011 and to correct the excessive deficit by 2013 with an annual average effort ranging from ½ to ¾% of GDP; The Czech Republic, Slovenia and Slovakia, were asked to start consolidating in 2010 in line with their national plans and to correct by 2013. The average annual fiscal efforts ranged from ¾ to 1% of GDP given the somewhat constrained fiscal space; Belgium and Italy were also asked to start in 2010 and to correct by 2012 given the high and rapidly increasing debt-level. Annual average effort was ½ (IT) and ¾% (BE) of GDP; Finally, Portugal was asked to start correcting in 2010 and to consolidate by 2013, implying an annual average fiscal effort of 1¼% of GDP given the well-known challenges, notably a high and rapidly increasing debt and large current account.
In all cases we conclude that the measures taken were sufficient to achieve the 2010 targets and, in most cases, there is an invitation to specify as soon as possible measures to substantiate the targets for the years beyond 2010.
For Spain and Portugal, beyond the assessment of effective action, the adequacy of the new announced targets and measures is also assessed, in line with the 9 May ECOFIN conclusions. The conclusion is that in both cases, the targets are appropriately ambitious and imply substantial fiscal consolidation. Spain and Portugal are expected to specify measures in their 2011 budgets amounting to 1¾% and 1½% of GDP respectively in order to attain the new targets. This assessment should be considered as early guidance for next year’s budget.
Overall, the current budgetary targets, including recent revisions appear to ensure an appropriate fiscal stance globally.
The Belgian authorities are implementing the deficit-reducing measures in 2010 as planned in the draft budget, totalling 1% of GDP. Furthermore, the 2010 headline deficit is forecast by the Commission services to come out lower than the deficit for 2010 projected in the draft budget.
The Czech authorities have implemented the deficit reducing measures in 2010 as planned in the draft budget law for 2010 and have taken additional measures in the course of the year to reach the 2010 deficit target. Overall, the fiscal impact of the measures is estimated at more than 2% of GDP.
The German authorities have implemented the fiscal stimulus measures in 2010 as planned, including the additional tax relief measures introduced by the Act to Accelerate Economic Growth, as recommended by the Council. Moreover the authorities have outlined in some detail the medium-term strategy for consolidation, which has to start in 2011 and announced on 7 June measures for the years 2011 and beyond.
The Irish authorities have implemented a significant consolidation package for 2010 of 2.5% of GDP, mainly on the expenditure side, in order to achieve the 11.5% of GDP deficit target. Overall, the net deficit-reducing thrust for 2010 is estimated at 4¼% of GDP, including the full-year effect of measures taken in the course of 2009.
The Spanish authorities have taken measures that represent an annual fiscal effort of more than 1½% of GDP in both 2010 and 2011, coupled with more ambitious targets for the budget balance in these years announced on 12 May.
The French authorities have broadly implemented the deficit-reducing measures in 2010 as planned, notably the partial withdrawal of the recovery plan. Furthermore, the deficit target for 2010 has been revised down by 0.5% of GDP compared to the budget target.
The Italian authorities are implementing the consolidation measures for 2010, taken in the context of the summer 2008 package for the period 2009-2011, as recommended by the Council, thereby reducing the 2010 deficit by an estimated 0.5% of GDP. Also, the 5% of GDP deficit target for 2010 has been confirmed. Furthermore, on 25 May the government adopted a decree law specifying the measures that underpin the additional consolidation efforts for 2011-2012, which fall mainly on current expenditure.
The Dutch authorities are implementing the fiscal measures in 2010 as envisaged in the 2010 budget, as recommended by the Council. The authorities have also outlined in some detail the medium-term strategy for consolidation, which has to start in 2011.
The Austrian authorities have implemented the fiscal stimulus measures as planned in 2010, including relief for families with children and tax cuts for the self-employed, as was recommended by the Council. The authorities have also outlined in some detail the medium-term strategy for consolidation, which has to start in 2011.
The Portuguese authorities have taken measures that represent an annual fiscal effort of more than 1¼% of GDP in both 2010 and 2011, accompanied by more ambitious targets for the budget balance in these years announced on 8 May.
The Slovenian authorities are implementing the consolidation measures in the budget for 2010, estimated to generate expenditure savings of around 1¼% of GDP in 2010, as planned. Furthermore, the government has adopted a supplementary budget on 10 June to reconfirm the deficit target.
The Slovak authorities have implemented several deficit reducing measures in 2010, which are expected to result in a sizeable improvement of the structural balance amounting to 1.2% of GDP.
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