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Joaquín Almunia

European Commissioner for Economic and Monetary Policy

Transcript of Commissioner Almunia's Press Conference on assessment of Stability and Convergence Programmes and application of the Stability and Growth Pact

Introductory remarks, Berlaymont Press Room, Brussels
Brussels, 18 February 2009

As you know, every year the European Commission, and later the Council, assesses the updated Stability and Convergence Programmes of our 27 Member States. This year, the assessment needs to take into account the way the different Member States have incorporated in their different programmes and in their budgetary strategies the Recovery Plan (proposed by the Commission in November and endorsed by the EU leaders in December), the national programmes and schemes that are being adopted following the objectives and guidelines in the Recovery Plan.

Today we are starting this exercise.

Of the 17 programmes assessed, eight belong to euro area members and nine to non-euro area Member States.

We have focused our assessment on the way the different governments and authorities of the Member States are tackling the current juncture, not only the recession, but also the uncertainty regarding the economic outlook and how we will manage a successful exit from this recession.

We have particularly assessed the way the Recovery Plan is being implemented. You remember that we not only established targets and objectives for the fiscal stimulus, but we also added the consideration that to be efficient the fiscal stimulus had to be targeted, timely and temporary. This last characteristic means that, looking at the medium-term budgetary strategy of our member States, we are paying attention to the way they are considering the reversibility of the fiscal stimulus once the recession will be over. Another consideration in our recovery plan that has also been important in our assessment is the way the medium-term position of the public finances is considered. In the short term we need a fiscal stimulus, but in the medium-term we need to continue a process of consolidation of the public finances and to advance towards a close-to-balance position. A third element we have to consider when assessing the Convergence and Stability Programmes, is the long-term sustainability of the public finances, this year with even more reasons than in the past exercises, because of the impact of the fiscal stimulus and of the automatic stabilisers on the evolution of the public debt ratio, and because of the additional impact on the public debt of the programmes to support the banking sector in many of our member States.

Second element that we have taken into account is how to implement the Stability and Growth Pact; how we understand the role of the Pact in helping us tackle this recession and in combining a fiscal stimulus in the short-term with a sustainable position of our public finances in the medium to long-term. We have received a clear mandate from the European Council in December. In its conclusions, the Council said that the Stability and Growth Pact continues to be "the cornerstone" of our fiscal framework. So EU leaders have renewed their full support to the Pact. We also anticipated on 26 November, in our Recovery Plan, that we were prepared to implement the pact in a judicious way, in an intelligent way. This means, under the present circumstances, that we need to use the flexibility that we introduced ourselves in 2005, when we revised the Pact.

So, this combination of preserving the Pact as a cornerstone of our fiscal framework while implementing the Pact in a judicious way, using the flexibility that we introduced four years ago, has been the framework for our assessment.

The final point before saying a few words on the individual opinions, is an important issue: how to communicate on this? What is the message? What is it we want to do and why are we doing the assessment in this way. I have to repeat again what I have said many times in the last months; something that does not seem to be understood, but I will repeat it again and again. In particular during a recession, the Pact is not at all about sanctions. Please do not explain to the citizens that to implement the Pact today this is about sanctions. Nobody is thinking of sanctions. Second, under the present circumstances the Pact is key to preserving the credibility of the Pact and the credibility of those who at the Commission and at the Council have to implement the Pact and to stick to the principles, the rules and procedures of the Pact. I have heard some opinions that say, well, as the recession is deep, you will loose credibility if you implement the Pact. This is wrong. What is true is that to overcome the recession, to maintain the confidence of the citizens in the capacity of their public authorities to preserve a sustainable position of their public finances over the medium to long-term, we need to implement the Pact. We need to implement in a flexible way. We need to implement the Pact as revised, but we cannot loose credibility or we cannot loose the credibility of our fiscal framework today. It would be a disaster for the European economies and, in particular, for those European economies who are receiving the pressure from the markets that are asking the authorities of some member States to consolidate the public finances unless they will be ready to risk more problems, further problems when re-financing the debt. So, this is a very important issue, how to preserve credibility and the commitment of those who are responsible to implement the Pact to stick to principles, the rules and the way the Pact was revised in 2005. Taking into account the situation, taking into account the political commitments and the spirit with which we are implementing the Pact, the Pact is an instrument that will help. It is not an obstacle, it is an instrument that will help the governments and the Member States fight the recession in the short term, preserve the sustainability of the public finances in the medium term and advance towards an exit strategy once the recession will be over in order not to put a huge burden on the next generations. This is extremely important.

Taking into account all this, let me just remind that we are assessing that the economic stimulus involved in the decisions of the member States in 2009 and 2010 can be estimated at between 3.3 and 4 points of the EU's GDP. On the 4th of March, in the Communication that the Commission wil adopt for the European Council we will precise and update these estimates, but so far the discretionary budgetary measures, the role of the automatic stabilisers and other measures represent a support to the economy of between 3.3 and 4 points of GDP. In our analysis, the three T's – temporary, targeted, timely – are broadly followed in the national decisions. The need to differentiate the contribution of the different Member States to the global objective of 1.5 this year, this differentiation is quite good. The Member States with the most room for manoeuvre are doing more in general, and the Member States, that for different reasons have not room for manoeuvre, they are not adopting fiscal stimulus', because they know that they cannot contribute to this collective effort.

In terms of exit strategy, we think that some programmes are better than others but, in any case, things should improve in the coming months. You will see in the opinions regarding several countries, that we recall them the need to be more precise, in this exit strategy.

Now, in terms of what we are saying in our opinions on the different countries analysed today, very rapidly, because you have the press releases and the information available.

In the case of Hungary and Latvia, in our opinions, we stick to the conditionality we agreed with them, when we adopted the balance of payment facilities support together with the IMF. We are not creating new conditions or establishing new conditions, we stick to the conditionality we agreed with Hungary and Latvia in the past months.

In the case of Ireland and Greece, with a different size of their budgets or deficits in 2008 and 2009, but we are asking them to step up the consolidation because the markets are putting them under very strong pressure, and we think that the best way to react to this market pressure is to step up consolidation now, in 2009.

In the case of France and Spain, we consider that 2009 is a year for stimulus and both countries have adopted stimulus measures. But 2010 should be a year when the consolidation will start, and both countries receive an Article 104.3 report and, in the coming weeks, will receive an excessive deficit procedure recommendation.

In the case of Malta, we have also adopted an article 104.3 report today, but because of the analysis of the closeness, temporariness and the other relevant factors we considered that Malta had a deficit above 3% last year, but will not be followed by an excessive deficit procedure for the reasons we have analysed in the report. In the case of the UK, there is already an excessive deficit procedure, but given the size of the deficit and the position of the public finances with a lot of risks in terms of sustainability, we will produce new recommendations for the fiscal consolidation when we will adopt the recommendations for the new EDP procedures at the end of March. In the case of other countries, that had not an excessive deficit above 3% in 2008, we are telling them, with different nuances, that 2009 is a year of stimulus, but next year they should start the consolidation. Those countries, including Germany, Poland and others, are not now in a situation to trigger an EDP even if our forecast for the futures shows that if they don't consolidate appropriately, they will breach the level of 3%. Finally we have a select group of countries, in particular Scandinavians, but also Bulgaria for instance, that still had surpluses and need to be careful for the medium-term sustainability of the public finances, or in the case of Bulgaria, also for other reasons, because of the nervousness of the markets, but so far, we can tell them, please continue as you have been doing. Thank you very much.

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