Brussels, 29/02/2000 (Agence Europe) - In addition to the four updated stability programmes for euro area countries (Germany, Belgium, Spain and Italy, see yesterday's EUROPE, pp. 15-16), Monday's Ecofin Council, chaired by Portugal's Finance Minister Mr Pina Moura, reacted favourably to the convergence programmes submitted by Denmark and the United Kingdom. The opinions it expressed are summarised below.
- Denmark. The updated programme (for the period 1999 to 2005) envisages budgetary surpluses of over 2% of GDP over the entire period and projects further reduction of the gross debt to 36% of GDP in 2005. The Council noted that the programme is based on a macroeconomic scenario (average growth of around 2% a year between 2001 and 2005) which "appears realistic" but nevertheless is based on "an ambitious target for employment growth while the assumed gains in labour productivity seem moderate". And it added: "Moderate productivity increases as assumed in the programme, combined with relatively high wage rises, could lead to a further erosion of Denmark's cost competitiveness vis-à-vis its trading partners, in particular in the euro area, on top of those already experienced in the recent past". The Council also observed that Denmark has continued meeting convergence criteria on inflation in spite of "a considerable increase in consumer prices in the course of 1999, due mainly to strong wage increases and a rise in energy taxes". But it also pointed out that the updated programme notes that there is a risk that inflation may temporarily exceed the reference value by a small margin in the first half of 2000, which is why the Council encouraged the Danish Government to monitor inflation closely and take further action if needed. It added in this connection that "moderate wage developments are of the utmost importance and this year's wage negotiations at company level might prove challenging". After noting that Denmark's participation in the European exchange-rate mechanism (ERM II) "has further strengthened the credibility of its monetary policy", the Council welcomed Copenhagen's budgetary strategy while specifying that, in view of the healthy situation of Danish government finances, it would "welcome the lower weight of public finances in the economy in forthcoming years as this would increase economic incentives and contribute to a more favourable medium-term outlook for growth and employment". The Council also encouraged Danish authorities to keep up the momentum of its comprehensive structural reforms, observing that the budgetary challenges deriving from the ageing population in Denmark could necessitate further structural labour market reforms in the medium term to keep public finances on a sustainable path.
- United Kingdom. The Council praised the clear presentation of the updated programme and noted that it is appropriate for the programme to stress macroeconomic stability supported by a sound budgetary position (small surplus at the start, followed by small deficits) and continued structural reform. It noted that projections for public finances are based, for reasons of caution, on a lower assumption for trend growth -namely 2.25%-, which it deems appropriate. The United Kingdom continues, moreover, to meet convergence criteria on inflation and long-term interest rates, the latter confirming the credibility of the stability oriented macroeconomic policy. The Council nonetheless observed that "while there are signs of reduced exchange rate volatility, it cannot yet be concluded that this policy framework has delivered a stable exchange rate". It accordingly recommended once again that London "continue with the stability oriented policies with a view to securing exchange rate stability which, in turn, should help reinforce a stable economic environment". The Council also: - commended the decision by British authorities to raise public investment as a share of GDP within expenditure totals; - noted that the decision to move to three-year allocations of departmental expenditure has placed the government finances on a more stable footing and that this mechanism should help ensure that the tight budgetary position is locked in over the economic cycle; - welcomed the government's determination to reduce the gross debt ratio to below 40% of GDP by 2004-2005; - welcomed the structural reforms included in the programme and noted with satisfaction that progress on economic reforms should help provide the flexibility required to improve the underlying performance of the economy and ensure that divergences in economic cycles between the United Kingdom and its European partners are minimised.
