Brussels, 24/06/2004 (Agence Europe) - On Thursday the Commission adopted a communication on public finance in the Economic and Monetary Union in 2004 (EMU). Joaquin Almunia, Commissioner for economic and monetary affairs indicated that the budgetary situation was not brilliant but better than without having had a monitoring mechanism for the Stability and Growth Pact (SGP). This communication appeared at the same time as the fifth Annual Report on Public Finances 2004, elaborated by the Economic and Monetary Affairs Directorate General at the Commission. This also produced other elements that the Commission is pushing for directing future negotiations on reform of the Stability Pact and which were listed in its communication to the Council.
The report points out that budget deficits have continued to grow in the Euro zone from 2.3% in 2002 to 2.7% in 2003 and for the EU 25 from 2.1% to 2.7% over the same period. With enlargement, the EU has experienced increasing disparities. In 2003, 11 countries saw their deficits supersede the threshold of 3% and 8 of them were unable to produce surpluses (Spain, Belgium, Luxembourg, Ireland, and Finland in the Euro zone), as well as Sweden, Denmark and Estonia in the EU 25. The report have revealed particularly worrying situations in France and Germany whose deficits have exceeded 3% for the past three years and are weighing down on the performance of the entire Euro zone. In the Euro-zone, between 2002 and 2003, the public debt-GDP ration worsened - 70.4% in the Euro zone and 63% in the EU 25. The report also looks at Italy whose deficit is only under 3% because of specific measures and whose public debt-GDP ratio is very high. Together with Belgium and Greece, Italy is accused of having debt that is above 100% of GDP.
Prospects for making public finances more robust are present for many Member States. According to forecasts, EU 25 deficits are expected to slightly diminish by 2005. Forecasts for 2004 for France, Germany, Greece, Netherlands and Portugal and probably Italy are not very encouraging given that their deficits are expected to remain above 3% Following the most recent stability and convergence plans, France, Germany, Portugal and the United Kingdom will be able to balance their books until 2007. The report points out that in many cases, the implementation of these programmes is poor and objectives appear difficult to attain, as well as countries having overly optimistic prospects for growth.
The report notes the significant progress in the analysis of the budgetary development. In response to those that regard budgetary discipline as a handicap to growth, the Commission explains that healthy finances help create a macro-economic environment that stimulates growth. According to the report, the existence of prolonged deficits has a negative impact on future revenue. Simulations demonstrate that in the absence of the budgetary monitoring mechanism, deficits would have been 0.9 points above GDP in 1994-2003 and that the current debt would have been 8 points higher than GDP. the report therefore estimates that the budgetary framework planned by the Stability Pact provided better foundations for increased and dynamic growth in the future.
Flexibility in how pact works but no change in principles
In an effort to obtain consensus between Member States, Mr Almunia presented the press with the Commission's initial impressions on the Stability pact, which are based on four major ideas for budgetary surveillance in the future:
- greater consideration of debt. If monitoring does not focus on debt long term risks for the public finance of Member States will be high, warned Almunia.
- encourage fiscal consolidation in economic growth periods to allow for more room for manoeuvre in low growth periods.
- better take into account specific situations of countries when definition of medium term objectives. Therefore Almunia declared that countries that presented sustainable public finances with low debt would have more time to obtain balance.
- take better account of economic development, on which "experience shows that certain rules were too harsh, and reduced margin for manoeuvre", said Mr Almunia.
- certain definitions of the pact and its procedures also require clarification, said the Commissioner.
The most important problem, according to Mr Almunia, is "the fact that the national parliaments do not take ownership of European decisions such as the Lisbon process or the BEPGs". As guidelines drawn up for economic and budgetary co-ordination do not have any real influence on national budgets, the Commission proposes that the BEPG timetable could be revised to allow national parliaments to "appropriate" the debate, and include possible measures co-ordinated at European level into national budgetary priorities (which are generally debated in autumn). The broad economic policy guidelines will thus be discussed at European level in the first half of the year, rather than throughout the year.
Commissioner Almunia will kick off bilateral consultations with the Member States and the ECB, and could present more circumspect proposals in a few months' time. Then, Mr Almunia noted, it will be a matter for the next Commission.