Brussels, 14/04/2010 (Agence Europe) - The European Commission has almost finished examination of this year's stability and convergence programmes. With Wednesday 14 April's assessment of Portugal's stability programme, 26 member states have now been screened. Greece is subject to specific follow-up and Cyprus' programme is now the only one that requires assessment (for the 24 others, see EUROPE 10100 and 10105). During their meeting on Friday 16 April in Madrid, eurozone ministers will for the first time evaluate the 2010 programmes (the Council will not, however, give its opinions until the next formal meeting in May). Their informal discussions will partly be based on a note from the Economic and Financial Committee's (EFC) position paper, which underlines the main lessons to be drawn from the series of updated programmes.
The Commission points out that it is clear that Portugal's public finances are significantly suffering as a result of the current crisis. According to the stability programme, the deficit reached 9.3% of GDP in 2009 and could be 8.3% this year, before gradually falling to 2.8% in 2013. The country's public debt could reach 90% of GDP in 2013 (as opposed to 77.2% in 2009 and 66.3% in 2008). Olli Rehn explained to the press that the Portuguese programme is “ambitious and relatively concrete for 2011 and 2013…but additional measures might be necessary, particularly this year if the risks affecting macro-economic and budgetary developments materialise”. According to the commissioner for economic and monetary affairs, the situation is not as good as when the Council recommendation was adopted on 2 December 2009, as part of the excessive debt procedure, which required Portugal to return to below the 3% GDP threshold by 2013. “Budgetary consolidation could be strengthened this year and help to correct the excessive deficit by 2013”. So far, the Commission considers that the post-2010 macro-economic hypotheses are a little optimistic. This characteristic is far from being exclusive to Portugal, as borne out by the EFC's evaluation.
EFC evaluation does not focus on fall-out from crisis but suggests some programmes appear over optimistic and require clarification
The EFC immediately points out that deficits will remain well above the 3% of GDP threshold in the next few years and states that the EU deficit will reach 7.2% on average this year. According to the document, this deficit is then expected to fall back to 4.3% in 2012 and perhaps 3% by 2013 (information for this year is only available for some member states). Although the vast majority of member states appear to want to respect the Council deadlines for returning to below 3%, certain countries subject to excessive debt procedures could step up their correction efforts.
Debt ratios have sharply increased over the last two years, with an average of +10% for the EU between 2008 and 2009. From 75% of GDP this year, the debt ratio might continue to increase to 83.5% by 2013. Given the ageing population, budgetary strategies presented in the programmes will not be enough to stabilise the debt levels by 2020 in the majority of member states, explains the EFC document. At EU level, the ratio will increase to almost 90% of GDP in the second half of the decade. The medium term objectives (MTO) have been put off indefinitely. Only one member state is expected to reach the MTO that it set out for the period covered by the programme.
The macro-economic scenarios underpinning member state forecasts are more optimistic than the Commission's autumn economic forecasts. Growth forecasts in the programmes are above the 0.3 percentage points for 2010 and 0.7 percentage points for 2011. The EFC says that this presents a “significant risk” to forthcoming budget results.
Generally, the budgetary strategies in the programmes lack precision. It would be better if the post-2010 measures contained more details and went further than the “no policy change” scenarios. In certain cases, the budgetary adjustment envisaged by a given member state is not as much as the annual average recommended by the Council in the excessive debt procedure.
The EFC considers that the current economic situation should provide an incentive to member states to exert greater prudence when defining macro-economic scenarios on which they base their programmes. The EFC also thinks that this situation should encourage states to ensure that budgetary clean up measures are enough to satisfy the Council's recommendations. (A.B./transl.fl)