Brussels, 10/01/2001 (Agence Europe) - On Wednesday, the European Commission adopted a recommendation on the updated Swedish convergence programme for the period 2000-2003. It reached the conclusion that Swedish "comfortably" fulfils the convergence criteria on the government budgetary position, inflation and interest rate, but does not fulfil the exchange rate criterion. On this, the Commission stresses "Sweden is expected to decide to join the ERM2 in due course". It also notes that current Swedish legislation "is not in compliance with the statute of the European System of Central Banks (ESCB).
We recall that the Stability and Growth Pact adopted by the Amsterdam Summit in June 1997 requires countries not adopting the single currency to present, annually, updated convergence programmes to the Council and the Commission in order to show how they intend to fulfil the criteria of the Stability Pact. Pedro Solbes, Commissioner for Economic and Monetary Affairs, commented on the programme saying that the Commission "will put increasing emphasis in its analysis on the conduct of economic policies over the medium term", and that its analysis mainly aims at assessing how Member States plan to implement structural reforms and above all deal with sustainability issues like the consequences of ageing population.
We give below the main conclusions of the European Commission:
- Situation of public finance. In 1999, Sweden registered a budgetary surplus of 1.5% of GDP and expects further improvements in 2000 and 2001. For the last two years covered by the programme, the rule of a surplus of 2% of GDP over the cycle is maintained. Although higher surpluses are estimated for 2002 and 2003, the programme does not state whether Sweden will aim for these estimated surpluses. Furthermore, the debt ratio should fall in 2000 to below the reference value of 60% of GDP (58.9%) and continue to fall substantially over the programme period (53.2% in 2001, 50.2% in 2002 and 48.2% in 2003). The European Commission notes that the surplus target of 2% on average over the cycle until 2015 "is welcome" to ensure long-term sustainability of public finance, but notes that, in order to achieve this, Sweden should make further efforts to restrict expenditure as, on top of the need to cope with the ageing population, Sweden may have difficulties in maintaining a high tax ratio, and that there may be a need for further reductions in taxes.
- Inflation. The programme notes that inflationary pressures remained subdued in 2000 (rate of inflation 1.1%) and are expected to remain so in 2001 (1.7% in 2001, 2% in 2002 and in 2003), but the Commission stresses that "should wage moderation weaken, price stability may be threatened". Results of the current wage negotiations will be crucial in this context, it stresses, considering that, in the case of such weakening, the expansionary fiscal stance in 2001 and 2002, as implied in the programme, would be inappropriate.
- Growth. The programme provides for real growth of 3.9% of GDP in 2000 and 3.5% in 2001, while for 2002 and 2003, it is based on a "cautious" assumption of 2.1% GDP growth, considered as the "trend growth rate", without presenting forecasts. The Commission recommends that Sweden include actual economic forecasts in future updates.