Brussels, 28/02/2000 (Agence Europe) - Meeting with Portugal's Finance Minister Joaquin Pina Moura in the Chair, the Ecofin Council examined in restricted session on Monday four updated stability programmes (Germany, Belgium, Spain and Italy) and two updated convergence programmes (Denmark and the United Kingdom), issuing positive opinions thereon. The highlights of the Council's remarks on the stability programmes are as follows (EUROPE will be back with details on the convergence programmes).
- Germany. The Council noted with satisfaction that the deficit outcomes for 1998 and 1999 were better than expected in the initial stability programme, significantly advancing the objective of "attaining a medium-term budgetary position of close to balance or in surplus". However, it observed that 1998 results were almost exclusively due to the "difficult to predict development of regional and local government finances". These developments tend to "underline the importance of efficient cooperation on government finances at national level". Further, the Council noted that the information provided in the updated programme does not in all respects comply with the code of conduct on the content and format of stablity and convergence programmes. "In particular, the programme lacks detailed information on the components of government revenue and expenditure and on the factors determining the debt ratio". The Council therefore reiterated its request that the German authorities provide additional information, at the latest, in the next update of the stability programme. The macroeconomic scenario (annual growth of 1.5%) is judged "realistic, provided that wage moderation and structural reforms on product and labour markets continue". Concerning reduction of the national deficit, the Council praised the approach of controlling spending by limiting its nominal overall increase to less than the expected nominal GDP growth rate. These savings "will create some room for tax relief in the framework of the reforms of income and corporate taxation, which are welcome as they will lead to a desirable reduction in the high overall tax burden in Germany". The Council nevertheless recommended "that the reforms be implemented with the greatest caution so as to minimalise the risk of a lasting deterioration of the structural government deficit". In the event of higher growth than expected, the Council recommended that the fiscal gains be used to reduce the deficit below the targeted level (0.5% of GDP in 2003).
- Belgium. Noting with satisfaction the better than expected results in 1998 and 1999, the Council considered that the growth projections on which the updated programme is based (2.5% a year for 2000 and 2001, 2.3% for the following years) "are likely to correspond to the lower limit of a range of probable macroeconomic projections", for which reason the Council expressed the opinion that "in the event of stronger growth the budgetary outcomes will be better than projected in the updated programme, particularly in 2000". It took note of the intention of the Belgian Government to advance the target of balanced government accounts to 2002 and to achieve a budget surplus in 2003 and welcomed the commitment of the Belgian authorities to seek better budgetary results in 2000 than those projected in the updated programme, which "would facilitate achieving a debt ratio close to 100% of GDP in 2003". The Council also commended: - the renewed commitment to maintain high primary surpluses, a strategy that has proved its "crucial" role; - the decision of the Belgian Government to strengthen efforts towards reducing the overall tax burden, in particular on labour, so as to increase the employment rate.
- Spain. After commending the results for 1998, "where GDP grew briskly along with strong job creation", the Council observed that price developments since the second half of 1999 were worse than expected. It noted that the macroeconomic scenario in the updated programme (growth decelerating from 3.7% in 1999 to 3.3% on average) is realistic and noted with satisfaction that the updated programme is in line with a continuation of the strategy adopted, which "relies on the restraint of primary current expenditure and allows for a reinforcement of government investment and a reduction in the tax burden". The Council noted that the expected expansion of the budgetary safety margin (surplus of 0.1% of GDP in 2002) "is justified in order to cope with the budgetary consequences of the ageing of the population", and consequently commends the commitment made to further increase the social security reserve fund created in 2000. It observed with satisfaction that the budgetary adjustment is to be shared by all sub-sectors of government, "notably the fact that the territorial governments are targeted to be in balance from 2001on". Given recent price developments, the Council considers it essential that wage developments in Spain continue to be geared towards price stability. It also considers that "fiscal policy should be ready to tighten further to counteract any possible overheating risk". The Council concluded by encouraging Madrid to continue implementing the pending structural reforms.
- Italy. The Council observed with satisfaction that despite the cyclical slowdown, the objective of the initial stability programme (deficit of 2% of GDP in 1999) seems to have been attained, thanks to lower than expected interest payments and higher than expected revenues, namely from improved tax collection. After noting that the decrease in the debt ratio kept pace in 1999, the Council welcomed the confirmation by the Italian authorities of the objective of pursuing further budgetary consolidation, "which would support a decline by over 3 percentage points per year in the debt/GDP ratio, to reach 100% in 2003". The macroeconomic scenario (growth rising from 1.3% in 1999 to nearly 3% in 2000-2003) is realistic and the cyclical upswing could turn out even stronger than assumed in 2000 and 2001. On the other hand, "the new assumptions on interest rates could be too optimistic in the light of recent developments in financial markets". The Council took note of the continuation of the budgetary strategy aiming at "keeping the primary surplus high and reducing current expenditure as a percentage of GDP, in parallel with some easing of the still heavy tax burden and an expansion of public investment, particularly in the South". While the Council judged that Italy should be capable of respecting the 3% deficit criterion, it noted that this country "must secure a steady decline in its still high government debt ratio". It added that, "should growth turn out stronger than projected in the updated programme", it expects Italy "to achieve better budgetary outcomes than planned and thus accelerate the reduction in the debt/GDP ratio towards the 60% reference value". Lastly, the Council once again urged Rome to "address with determination the medium-term structural challenges to public finances from pension and other age-related budgetary expenditures". The government proposals aimed at promoting the expansion of funded pension provisions go in the right direction but "would not eliminate the need to re-examine the parameters of the present system". A timely re-assessment, continued the Council, would make it possible to contain the expected increase in the ratio of pension expenditures to GDP. In conclusion, the Council "further encourages the Italian Government to pursue with vigour its privatisation programme and to enhance the structural reforms of labour and product markets and of the public administration, which are all needed in order to foster competition and efficiency and revitalise the Italian economy".
