Brussels, 27/06/2001 (Agence Europe) - Wednesday, the European Commission adopted a communication accompanying the second report on public finances in EMU in which it singles out four Member States of the euro zone (France, Germany, Italy and Portugal) which still have deficits "much higher" than the objective set by the Stability and Growth Pact (SGP), which is to have a "budgetary position close to a balance or a surplus". These countries are said a reduced margin of manoeuvre faced with the current slowdown in the economy, whereas the Commission authorizes a "controlled" rise in budgetary deficits in the countries of the euro zone whose public finances are healthy. The Commission's communication also recalls that sound management of public finances remains one of the European Union's top priorities, so as to be able to ease tax pressure on work and effectively tackle the problems of pensions and health care. Most Member States "have for a long time now delayed in redirecting their public spending to the benefit of policies creators of growth and employment", the Commission writes.
"Whereas progress was made in 2000 in certain Member States (Belgium, Spain, Austria, Ireland and Finland), it is to be regretted that certain countries have not managed to draw the advantages of favourable growth in the first two years of EMU so as better to consolidate their public finances", declared Commissioner Pedro Solbes at a press conference. "In the medium-term, updated stability and convergence programmes show that all Member States intend achieving a budgetary position close to a balance or a surplus. However, it will not be before 2003 o 2004 for some of them" said Solbes, considering the most programmes seemed to "lack ambition regarding the need to prepare for the budgetary consequences of an ageing population". To that must be added the fact that budgetary balances in the countries of the euro zone should deteriorate slightly in 2001 in both actual and cyclically corrected terms, "thereby marking the first reversal of the trend regarding budget improvements since 1993".
The "budgetary developments and prospects" part of the report stresses that the budgetary deficit of the zone fell to 0.7% of GDP in 2000 (excluding the product on the sale of UMTS licences), or 0.5% less than in 1999. In some countries, budgetary consolidation was better than expected (Finland, Austria, Greece and Sweden), whereas others, like Luxembourg, Germany, Belgium, France, Ireland the Netherlands and Denmark had to downwardly review their estimates. The medium-term respect of the goal of a globally balanced budget is particularly important for deeply indebted countries (Belgium, Greece and Italy) to be able to rapidly return to a level of indebtedness below 60% of GDP. In countries with powerful economic stabilizers (the Netherlands, Finland and, outside the euro zone, Denmark and Sweden), on the other hand, a slight structural surplus seems appropriate.
The other main points raised in the report are the following: - an appropriate dosage of macroeconomic policies, at the level of both the euro zone and Member States: on the one hand, a balanced dosage is necessary for budgetary policies not to impose an excessive burden on monetary policy (which would risk worsening the current economic slowdown), on the other, the budgetary policies of Member Sates must also lead to a judicious macroeconomic dosage at world level, especially in countries that present obvious signs of overheating; - easing the tax pressure on work, which has progressed, whereas additional efforts are needed regarding tax on low paid work. As for social benefits systems, progress has been slight; - a decentralized approach ("bottom-up") to budgetary policy: for it to work, coordination of economic policies must have real substance, and national authorities must realistically take account of the implications of their national measures for the euro zone.
"The current economic slowdown will provide the first real test of the effectiveness of the euro-area budgetary surveillance process", said Solbes before providing explanations on the role (at times placed into question) of automatic stabilizers, not only when economies are affected by shocks situated on the side of demand (reduction in private consumption or fall in exports), but also when it is a question of shocks to supply (like price variations for energy or technological innovation).