Brussels, 24/03/2010 (Agence Europe) - Following last week's assessment by the European Commission of the first group of 14 EU member states (EUROPE 10100), the Commission gave its verdict on Wednesday 24 March, on the updated stability and convergence programmes in 10 countries (Czech Republic, Denmark, Hungary, Lithuania, Luxembourg, Latvia, Malta, Poland, Romania and Slovenia). These evaluations should be seen in the context of the economic and financial crisis, which has provoked a sharp deterioration in public finances since 2009 and which has prompted the Council to begin excessive deficit procedures against the great majority of member states. Out of this group of 10 countries, only Denmark and Luxembourg have maintained their public deficit below the 3% level of GDP in 2009, but their budget situations will considerably decline in 2010.
Most countries will begin a budgetary cleaning-up process in 2010, in compliance with the recommendations formulated in the framework of excessive deficit procedures and, in the case of Latvia, Hungary and Romania, the conditions set out in the international financial assistance programme. With regard to the budgetary objectives announced in the programmes, the forecasts for growth on which they are based in several cases (Denmark, Hungary, Lithuania, Slovenia and Poland) are optimistic, according to the Commission. The strategy for cleaning up the budgets is often not sufficiently backed up by concrete measures as from 2011 (Denmark, Czech Republic, Malta, Romania and Poland).
During a press conference, Olli Rehn, the European commissioner responsible for economic and monetary affairs, explained that the Commission had assessed a total of 24 programmes. The remainder included: Greece (enhanced supervision according to the modifications introduced at the beginning of March); Portugal and Cyprus, which had fallen behind in the presentation of their programmes because “they are currently taking measures to clean up their budgets”. The commissioner pointed out that the economic crisis was very deep and had left scars. In 2009, the public deficit overshot the 6% GDP level in the eurozone and went above 7% for the whole of the EU. The year 2010 is the “first real test for implementation of the budget exit strategy decided on last year by the European Council”: - budgetary cleaning up will begin as from 2011; - in certain countries, specific situations should be taken into consideration and certain countries are expected to begin their cleaning up exercises before 2011 (depending on margins available in the different countries).
Only the United Kingdom does not intend to correct its public deficit in 2014-2015
From the analysis of the 24 programmes Mr Rehn has retained three main conclusions: - “all EU countries, apart from the United Kingdom, appear to want to respect the deadlines included in the excessive deficit procedures”, even though concrete measures for achieving this have not yet been totally defined; - “member states are counting on more optimistic macro-economic hypotheses than those put forward by the Commission in its autumn forecasts”; - there is a “back loading” effect, which consists of postponing any cleaning up until the end of the period, namely 2012-2013, which is causing the Commission some concern.
Under the stability and convergence programmes, aggregate deficit is expected to reach 3% in 2014, which is “positive” and demonstrates the member states wish to respect the deadlines, except in the United Kingdom, explained Mr Rehn. The United Kingdom does not intend to correct its public deficit in 2014-2015 as recommended by the Ecofin Council in December 2009. Slovakia is planning on introducing cleaning up measures and will be the subject of “frontloading”. Mr Rehn welcomed the fact that the country intends to bring its deficit down to 3% in 2012, namely a year before the deadline laid down by the Ecofin Council for the country.
Mr Rehn explained that there was a “red line” in most of these programmes: - concrete measures for accomplishing any cleaning up have not been defined; -“budget results are at risk of being worse, especially if economic growth is weaker than forecast”; most countries are also hoping to rapidly returned to a level of growth in GDP that is equivalent to that prevailing before the crisis, “ but unfortunately, this does not seem realistic to us, if we take into account the hypotheses of the Commission”, explained the Commissioner. He added that, “unfortunately, potential growth has been hard hit by the economic recession and this is why we absolutely have to mobilise all our efforts to implement the EU 2020 strategy”. In conclusion, the Commission is calling on member states to “prepare themselves to take other cleaning up measures in the event of economic growth being below that forecast in the programmes”. At the beginning of May, the Commission will present its next economic and budgetary forecasts for 2010 and 2011.
The Commission evaluation of the 10 countries is as follows:
Czech Republic. Its programme includes a nominal budget reduction, which must fall from 6.6% of GDP in 2009 to 3% in 2013, in compliance with the recommendations made by the Council on 2 December 2009. The authorities have begun to implement a vast cleaning up programme this year, which is expected to represent a structural budgetary correction of around 2% of GDP. Despite the expected economic recovery (+1.3% of GDP in 2010 and +3.8% in 2012), improvement in the structural balance is expected, but will slow down quite considerably in 2011 and 2012.
Denmark. Denmark implemented a vast budgetary recovery plan in 2009 and expects to pursue its expansionist budgetary policy in 2010. Public finances fell deeply into the red in 2009 (-2.9%, after +3.4% in 2008). They will continue to get worse in 2010 (-5.3%). The programme forecasts a gradual reduction in the deficit and predicts that it will go back to the 3% GDP reference value in 2013. Nonetheless, the Commission is concerned that the country has not explained what measures will be necessary to accomplish this cleaning up process. The Commission affirms that one of the crucial objectives will be to “pursue reforms aimed at increasing the supply of manpower”.
Hungary. For 2010, the programme is targeting a budget deficit of 3.8% of GDP. For 2011 and 2012, the budget deficit is expected to be reabsorbed and fall to 2.8% and 2.5% respectively but these forecasts are based on measures that have not been completely explained in the programme. This trajectory for reducing the budget would enable the country to correct its budget deficit in 2011, in compliance with a recommendation by the Council on 7 July 2009. Public debt will culminate to almost 80% of GDP in 2010 and will then fall to 73% in 2012. Hungary is therefore called on to pursue administrative reforms and adopt structural reforms for failing companies.
Latvia. The 2009 budget surplus included a budget cleaning up effort that would account for 4.4% of GDP and a further effort of more than 4.2% of GDP for the 2010 budget. Latvia is called on to take the necessary measures for correcting its excessive deficit in compliance with the recommendations sent to the country by the Council on 7 July 2009, in the conditions set out for European Union aid (balance of payments support). Full implementation of its 2010 budget is expected, in accordance with the different options for cleaning up measures, which will be included in the 2011 budget. Latvia is also being urged to improve governance and its budgetary transparency, as well as to reform its social benefit allocation system and to take measures to promote economic growth.
Lithuania. Lithuania intends to pursue its vast programme for improving its budget and bring down the 9.1% deficit of GDP in 2009 to 3% of GDP in 2012 at the latest, in compliance with the Council recommendations of 16 February 2010. Nonetheless, the budget results could prove to be worse than expected.
Luxembourg. Public finances fell into deficit in 2009 (-1.1%), due to the combined effect of automatic stabilisers and budget recovery measures. According to the programme, the deficit will increase to: 3.9% of GDP in 2010, -5% in 2011, -4.6% in 2012. It will then fall progressively to 3.1% of GDP in 2014.
Malta. The programme aims to stabilise the deficit in 2010 to 3.9% of GDP, before falling to below the 3% threshold in 2011. The rate of debt is expected to reach a ceiling of almost 69% in 2010.
Poland. In reply to questions from the press, Mr Rehn pointed out that this was the only country in the EU to have had positive growth in 2009 but with the public deficit 67.2% of GDP in the same year. The programme is aimed at bringing the deficit down to below the 3% of GDP rate in 2012 (in compliance with recommendations from the Council). Mr Rehn was concerned, however, that “budgetary recovery was concentrated over the most recent years of the programme”. Poland is being urged to correct the excessive deficit by focusing on budgetary adjustment at the beginning of the period.
Romania. The programme aims to reduce the public deficit: from 8% of GDP in 2009 to 3% in 2012. Predicted budgetary adjustment is focused on the beginning of the period. Implementation of all budgetary recovery measures to 2010 is essential if the objective of 6.3% of GDP targeted this year is to be achieved. Romania is being urged to adopt its draft law on pensions.
Slovenia. Public deficit rose from 1.8% of GDP in 2008 to 5.7% in 2009 and, according to the country's forecasts, will stabilise in 2010. Gross debt rates of 34.4% of GDP in 2009 are still expected to increase until 2011 and then will stabilise around 42% of GDP. The deficit and debt could prove to be higher than expected. (L.C./transl.fl)