Brussels, 13/03/2000 (Agence Europe) - The Ecofin Council meeting on Monday with Portuguese Finance Minister Joaquim Pina Moura in the Chair heard Commissioner Solbes and reviewed the evaluation of the Economic and Financial Committee, after which it delivered its opinion on the updated stability programmes submitted by France, Luxembourg and Portugal, noting that they are in compliance with the requirements of the Stability and Growth Pact. Ministers nonetheless expressed certain criticisms, especially relating to Portugal. The Council commented as follows.
France. Entitled Programme pluriannuel de finances publiques, 2001-2003, the French updated programme was criticised for not being "publicly and specifically" presented as a stability programme, an error the Council invites France to correct. Likewise, while noting with satisfaction that the French public deficit for 1999 was lower than projected, the Ecofin Council points out that norms for the evolution of government spending in real terms have not been fully met, due in particular to "higher than projected expenditure, at current prices, in the health insurance and local authorities' sectors". Observing that the programme projects real GDP growth of at least 3% in 2000 and presents two scenarios for 2001-2003 (growth of 2.5% or of 3%), it considers that the higher growth scenario may be seen as a realistic basis for economic policy, given recent developments and short-term perspectives. It confirms that the budget strategy of French authorities (control of expenditure in real terms allowing a reduction of expenditure relative to GDP) is "appropriate". However, as was seen in 1999, implementation of this strategy can in some cases prove difficult, which is why the Council considers that corrective measures for any slippage from targets in specific groups "should be implemented within the same year, or at the latest in the following year". Lastly, if room for manoeuvre in the budget should prove larger than expected, "either as a result of higher growth or for other reasons, including a 1999 deficit ratio lower than the estimate of 2.1% of GDP, the Council considers that French authorities should seize the opportunity to reduce the deficit more quickly" which would "allow government accounts to be in balance in 2003 and the fulfilment of the Stability and Growth Pact maybe even this year, or in 2001 with a more comfortable margin".
Luxembourg. Noting with satisfaction that Luxembourg's situation in terms of public finances improved further in the last two years and that the budgetary targets set in the initial stability programme have even been exceeded (1999 surplus estimated at 2.3% rather than 1.2% of GDP; debt of around 4.3% of GDP), the Council observed that Luxembourg's "continuing commitment" to sound economic policies enables it to project growth rates "clearly above 5%" in 2000 and 2001. Consequently, the updated programme is projecting more ambitious budgetary outcomes, i.e. a surplus rising to 2.5% of GDP in 2000 to 3.1% in 2003. The Council recognises the relevance of policies to enhance the capacity of a small open economy such as Luxembourg to face unfavourable external influences. Accordingly, it: - welcomes measures aimed at strengthening reserve funds; - commends the building of sufficient reserves in the area of pension provision and social security in general; - encourages the government to continue combining such prudential measures with policies and reforms aimed at enhancing the potential of the economy; - welcomes the increased resources allocated to government investment. Encouraging the public authorities to pursue their objectives of limiting the increase in central government expenditures, the Council concludes by inviting them to be ready to tighten the stance of fiscal policy in the event of risks of inflationary pressure, "notably in view of the current and prospective high rates of economic growth".
Portugal. Beginning by noting with satisfaction that the Portuguese economy has been growing at rates above the EU average and that structural reforms have contributed to these good results, the Council observes that the macroeconomic scenario of the updated programme (2000-2004) is based on the assumption of average annual growth of 3.5%, which is expected to be driven by dynamic domestic demand, "while the contribution of net exports remains negative, thus widening further the already high external imbalances". For the Council, this scenario "relies mainly on domestic demand, with investment being its most dynamic component. Consequently, it urges Lisbon to "monitor closely macroeconomic developments and to take corrective action if needed", adding: "This might require, in addition to reinforcing competitiveness through, inter alia, a moderation of wage increases and structural measures, a tightening of budgetary policy with a view to dampening domestic demand." Concerning public expenditure, it notes that the good results were "possible mainly because of higher-than-projected revenue", which made it possible to offset significant overruns of current primary expenditure, due chiefly to overspending in the health sector and a strong rise in the government's wage bill. Under the updated programme, government revenue and primary expenditure are planned to continue to increase strongly in 2000, and only after that are they expected to decline marginally. Accordingly, the Council: - recalls that implementation of this adjustment strategy should be in keeping with the Broad Economic Policy Guidelines; - notes that the reduction of the ratio of current primary spending to GDP after 2000 should be achieved more efficiently and sustainably by enlarging the scope of expenditure restraint. Lastly, observing that the government balance is projected to reach the minimum position only from 2002, the Council reiterates its recommendation that "a faster decline in the deficit ratio should be achieved with a view to increasing the necessary safety margin allowing Portugal to let the automatic stabilisers work in the event of a cyclical downturn". And it adds: "Portuguese authorities should do their best to achieve better than planned results. Moreover, the Council urges the Portuguese government to adhere firmly to the deficit target for 2000 by tightly controlling expenditure; the Council welcomes the ex-ante freezing of some expenditure in the budget for 2000 and considers that, if necessary for achieving the target, the credits should not be used." To conclude, the Council welcomes the planned budgetary and structural reform measures, calling for "rapid and determined" implementation.