Brussels, 13/02/2002 (Agence Europe) - The ECOFIN Council on Tuesday endorsed opinions on the 2001 updates of eight countries' stability or convergence programmes (see yesterday's EUROPE p.7 on Germany's programme) and continued its work on preparing for the Barcelona Summit.
* Stability or convergence programmes.
Portugal. Like Germany, Portugal was not sent a warning letter but will have to give assurances (set out in a Council declaration) that it will achieve a balanced budget in 2004 and it will not break through the 3% cut-off point in terms of its public deficit. In the opinion on the Portuguese Stability Programme for 2001/2005, the ECOFIN Council said that the differences in the forecasts for the public debt (2.2% of GDP according to recent forecasts as opposed to 1.1% in January 2001 forecasts) was partly due to the economic slowdown but also to other factors such as underestimating the tax implications of the cut in direct taxation implemented in 2001; less tax revenue than predicted being collected; and worse than expected changes in primary current expenditure. The Council recognised that Portugal took measures in its June 2001 amending budget to hold back rising expenditure, but they were insufficient at 0.6% of GDP to make up for the absence of tax revenue to meet the deficit targets laid down in the previous programme; The Council says that Portugal's public finances should be slightly in surplus by 2004 which would mean Portugal meeting the Stability and Growth Pact demands at that point in time. The main challenge facing Portugal is to reform its recently negotiated pension scheme that is already moving in the right direction, and to continue to reform healthcare.
Ireland. The Council regretted that the public finance surplus had not performed as expected (1.5% of GDP in 2001, 2.5% lower than forecast) and this had given rise to lower forecasts for public finance in the updated programme. The Council said that budget changes had not followed the previous approach of keeping high surpluses and cutting levels of debt since Ireland says its surplus would only reach 0.7% of GDP in 2002, 0.5% in 2003a and 0.6% in 2004. This is of concern to the Council since the budget forecasts in previous programmes had met all the Pact's demands, but the new programme's forecasts may not meet the demand of being close to balance as from 2003 onwards. The Council also criticised the fact that the new programme did not have any medium term framework for guiding and monitoring public expenditure and demanded that Ireland tackle this issue as required in the 2001 Broad Economic Policy Guidelines.
Italy. The Council welcomed the government's pledge to continue to try to reach high primary surpluses and cut tax pressure but was concerned that it had put off for a year its reduction in the public debt to below 100% of GDP. The Council said that room for manoeuvre existed to prevent the deficit breaking the 3% GDP barrier and called on Italy to change the rules to make it possible to more effectively monitor current expenditure at all levels and recommended that it started preparing for a tighter budget beyond 2003. Italy was requested to speed up its reform of the pension system and encourage people to take out additional private pensions (as stipulated in its programme). The Council stressed the crucial importance of reforming the job market and speeding up a cut in Italy's debt levels.
France. Macro-economic forecasts may well be over-optimistic in the short-term argues the Council, noting that since GDP growth was unlikely to exceed 2% in 2001 and 1.5% in 2002, the 2002 public deficit was likely to be bigger than expected and great efforts should be made to reach a balanced budget in 2004. The Council said that the strategy outlined for meeting the challenges of an ageing population had to be more ambitious and argued that France urgently needed to reform its pension system at soon as possible.
Greece. The maintenance of big primary surpluses (more than 6% of GDP) and the aim of tightening budget policy if needs be were considered "wise" by the Council, whose opinion states that the public debt was expected to fall from 99.6% of GDP in 2001 to 90.0% in 2004. Greece is called upon to take advantage of the macroeconomic situation to cut its public debt as quickly as possible. The Council notes that in the short term, the Greek government had to keep a close eye on price rises, particularly in terms of the upcoming wage negotiations. It was also called upon to set clear and binding standards for current primary expenditure as soon as possible.
Spain. The Council believes the Spanish programme meets the Pact's demands and respects the targets with an ever greater margin. It noted with pleasure the changes to the Spanish budget framework such as the passing of a general budget stability law and the introduction of reforms in 2002 transferring serious power in terms of taxation and expenditure to regional authorities. The ministers welcomed the fact that all sub-sectors of the public administration were abiding by budgetary discipline. The only negative point was the lack of detailed information about measures to be taken to consolidate long-term viability of public expenditure where there was a risk of seeing serious imbalances appear and also the impact of an ageing population had not been accurately reflected in the forecasts of future pension expenditure and social security contributions, according to the Council.
The United Kingdom. As already pointed out by the Commission (see EUROPE of 1 February, p.10), convergence criteria in terms of inflation and interest rates are being met and for the first time, the UK was meeting long-term interest rate criteria too. To sum up, healthy UK public finances, the attempts to cut public investment to a low level and the low level of public debt were hailed by the ministers.
Preparing for the Barcelona European Council. When it came to discussion on the preparations for the Summit, the ministers looked at the liberalisation of network industries, explained the President of the Council of Ministers, Rodrigo Rato, who felt that one had reason to be optimistic about liberalisation. The President of the European Commission will be presenting the 5 March ECOFIN Council with a document summarising the various Council's contributions to the Summit. The finance ministers heard Commissioner Pedro Solbes discuss the implementation of the Lisbon strategy, followed by Commissioner Frits Bolkestein presenting his latest report on the functioning of goods and capital markets (the Cardiff report), calling the rapid adoption of the Community patent and the public procurement package. The President of the Monetary Policy Committee, Mr Cotis, addressed the Council about the 2002 annual report on structural reform.
The President of the Economic and Financial Committee, Mr Akerholm, told the ministers about the preparatory work for the Board Economic Policy Guidelines for 2002, and the Council then held a brief exchange of views on documents provided by the European Commission and the Presidency. Mr Solbes told journalists that the Commission had decided on two priorities for the 2002 BEPG, namely making progress in moving towards budgetary consolidation in order to deal with the impact of an ageing population on public finances (if the economy picks up, automatic stabilisers could be used to cut the deficit) with the aim of getting balanced or surplus budgets, stressed Mr Solbes; and speeding up the structural reform process to increase growth potential and avoid the bottlenecks that are found in various parts of Europe. Mr Solbes stressed the need to reform social security; the importance of liberalising network industries and continuing to implement the single market in financial services.
Own resources. The Council welcomed the fact that all Member States (including the laggards Luxembourg and Belgium) had finally completed the ratification procedure for the Council decision of 29 September 2002 on the system of EC own resources and that this decision will come into force on 1 March 2002. This delay had been embarrassing not only for Commissioner Michaele Schreyer who had had to find a provisional solution for extending the own resources system (see EUROPE of 6 December, p.13), but also for Germany, which paid some EUR 60 million a month more than stipulated in the new own resource decision.