Brussels, 31/01/2002 (Agence Europe) - On Wednesday, the European Commission adopted its recommendations on the subject of the stability programmes of eight countries, including those of Germany, Portugal, France and Italy (see yesterday's EUROPE, p.6). EUROPE returns to the main conclusions of the services under Commissioner Pedro Solbes on the subject of the stability programmes of Greece, Spain and Ireland, and the United Kingdom's convergence programme, which were considered conform to the requirements of the Stability and Growth Pact. The Danish government (which has adopted its budget for 2002) should, in a few days from now, transmit its convergence programme to the Commission. The conclusions on the subject of assessing this programme should be adopted by the Commission early in February.
Greece: The Commission deplores the fact that "projections underlie no further budgetary adjustment as the improvement in the government surplus almost mirrors the steady decrease in interest payments. Practically no retrenchment in current primary expenditure is projected throughout the period covered by the 2001 update and no clear binding norm for current primary expenditure has been defined as it was recommended by both the Council opinion of 22 March 2001 and in last year's Broad Economic Policy Guidelines". It adds that "high primary surpluses are particularly essential to ensure a rapid reduction of the still high government debt ratio", while stressing that the primary surplus of public administrations will progressively decline in Greece from 99.6% of GDP in 2001 to 90% of GDP instead of 84% of GDP in 2004. Also, add Mr Solbes' services "financial operations, as these are partly not recorded in the budget" continue to have an impact at the public debt level. "This lack of transparency raises doubt about the quality of the budgetary adjustment", concludes the Commission, calling in passing on the Greek government to start a reform of the public pension system as no progress was made in this area in the past year. On the subject of economic growth, it notes that activity remained relatively sustained in Greece in 2001, which allowed this country to achieve a budgetary surplus estimated at 0.1% of GDP, compared to 0.5% foreseen in the budget and the previous stability programme. This gap, says the Commission, was due to both a shortfall in tax revenues and to an overrun in primary expenditure (mainly wages and transfers), only partly offset by non-budgeted receipts of around 0.4% of GDP from the sale of UMTS licences. Greece is tabling in its programme on real GDP growth of around 4% annually, that is, "considerably lower than projected in the 2000 stability programme", notes the Commission, which nonetheless considers that these projections are "realistic and close to the Commission Autumn 2001 forecasts".
Spain: The updated programme gives insufficient information on measures envisaged to consolidate the long-term viability of public finance. This is a "matter of concern given Spain's particularly exposed demographic profile and the adverse budgetary consequences of the ageing population", stresses the Commission. It notes that the updated programme includes projections concerning retirement spending and social security contributions up to 2015, while the budgetary effects of ageing in Spain will become particularly apparent only after 2020. "The gravity of the problem is not reflected in the update", concludes the Commission, which also recalls the lack of determination shown for pursuing the reform of the pension system. Hitherto, it states, the main measure adopted to face up to the ageing population was the creation, in 2000, of the Social Security bank whose assets should, according to forecasts, reach 1% of GDP in 2004. "Overall, a more comprehensive and ambitious approach is required to place public finances on a permanently sustainable footing", notes the Commission. Furthermore, it welcomes the confirmation that budgetary balance has been achieved. This balance should be maintained in 2002 and 2003 then change into low surpluses (from 0.1% and 0.2% of GDP, in 2004 and 2005 respectively). The primary surplus should remain practically unchanged, nearly 3% of GDP, throughout the whole period of the programme. The debt ratio, which is below 60%, should fall to 50% by 2005.
Ireland: Budgetary policy is expected to be generally neutral in 2002, in accordance with the Broad Economic Policy Guidelines adopted for 2001 and with the conclusions of the Ecofin Council last November on the Council's recommendation of 12 February 2001, the Commission is pleased to note. However, the "general government target for 2002 in the update is subject to a number of upward and downward risks such as the impact of the public sector wage benchmarking process".
The estimations suggest that the level of debt should remain pretty stable from 2002 onwards (at the very low level of 34% of GDP). The budget projections suggest that the demand to maintain a close to balance budget would not be respected from 2003 onwards but they imply there will be sufficient margin to avoid exceeding the threshold of 3% of GDP. The Commission notes that Ireland is in a "good position" for dealing with the costs of an ageing population. Some 1% of GDP a year is being earmarked as a contribution to the national pension fund.