Brussels, 02/02/2005 (Agence Europe) - Further to the examination of the second drafts of the updated stability and convergence programmes of eleven Member States, the Commission is satisfied with efforts made by five of them. These are Ireland, Finland, Denmark, Estonia and Malta. Poland, Slovakia and Belgium, on the other hand and, to a greater degree, France, Germany and Italy must do better if they are to achieve the goal of medium-term balance demanded by the Stability and Growth Pact (SGP), a Commission spokesperson announced. On 16 February, the College of Commissioners will examine the programmes of the remaining Member States, with the exception of Greece, which the authorities have asked to submit a new version, taking on board the recent decision on the excessive deficit proceedings against it (EUROPE of 17 January, p.7). The Commission is to present a new recommendation to the Council on the basis of article 104§9, calling upon Greece to take new measures to come back below the ceiling of 3%. The Council will take position on this recommendation on 17 February, at the same time as it looks at the assessments of the 24 multi-annual programmes.
Thanks to extra tax revenue and exceptional measures, Ireland will register a budget surplus of 0.9% in 2004, compared to the deficit of 1.1% of GDP forecast by the stability programme submitted in 2003. In an updated version for 2004-2007, Ireland predicts a deficit between 0.6% and 0.8% from 2005 to 2008. The margin offered by growth perspectives (5.2% on average) will be enough to stay on line with the medium-term balance objective, the Commission states, noting that the level of debt (around 30%) is a gauge of healthy public finances in the long term.
For 2004-2008, Finland is set to record a budget surplus of 2% on average, although tax cuts of 1.2% of GDP could reduce this substantially. With public debt of 44.6% of GDP, which should continue to fall to a level of 41.1% in 2008, the contents of Finland's stability programme are enough to keep in line with the 60% threshold enshrined in the SGP.
Denmark's convergence programme for the period 2004-2010 “fully respects the objectives of the SGP” and paints a “very healthy” picture of the country's public finances, states the Commission. Denmark will continue to present a budget surplus between 1.5% and 2.5% of GDP, and the level of debt should fall from 42.3% in 2003 to 28.8% in 2010, putting it in a favourable position for tackling the consequences of the ageing population, the Commission feels.
Nor does the Commission have any serious misgivings about Estonia, whose “economic performance continues to impress on more than one front”. Under the effect of growth between 5.6% and 6% for 2004-2008, which the Commission feels is plausible, Estonia's convergence programme shows a budget surplus of 1% for 2004 and a balanced position for the four following years. Although Estonia, with the lowest public debt in the EU (4.8%) is in a very strong medium-term position, the Commission points out that a fall in revenue further to tax cuts “is unavoidable”.
Malta, with a deficit of 5.2%, is “on the right tracks” to get back below the 3% threshold in 2006 (2.3%) and stay there in 2007 (1.4%). Its programme for 2004-2007 anticipates an increase in growth (from 0.6% in 2004 to 1.8% on average for the following years), which the Commission agrees with. The sustainability of public finances will, however, depend on the country's ability to face up to the ageing of its population and the reduction of its debt, which was 73.2% in 2004, and is set to fall to 70.4% by 2007.
Generally, their macro-economic situations, their budgetary forecasts and their growth estimates, which are “balanced, prudent and realistic”, earned these countries a positive appraisal from the Commission. Based on these same parameters, the Commission is less confident about the performances of the other Member States. When asked about the fact that the Commission's assessments were based on the figures of the Member States, the spokesperson of Commissioner Almunia, Amelia Torres, commented: “it is logical that there is some uncertainty about future economic forecasts”. These assessments will depend on how the growth and budgetary forecasts pan out, she noted, adding that for France and Germany, “we feel that both countries can get below 3%, if a number of variables are respected”.
Whereas France's objective is to bring its deficit from 3.6% of GDP in 2004 to 2.9% in 2005, the Commission reiterates that the government's measures are likely to bring about a level of 3% this year, and that the “budget situation remains vulnerable”. This will depend on “the effective application of all planned measures, but also additional measures in case of unfavourable developments”, the Commission adds. The reduction of the deficit to 2.2% in 2006 is also in question given the announced tax reductions and the spending objectives for the period 2006-2008, which seem difficult to keep to. Growth estimates, of 2.5% over the period, are high but remain “plausible”. Finally, the aim of budgetary balance will not be reached during the reference period any more than the debt will be brought back below the 60% mark (reduction from 64.8% in 2004 to 62% in 2008).
On the subject of Germany, the Commission also regrets that the adjustments foreseen at the end of the programme remain modest, despite the growth prospects that are “above potential” (between 1.7% in 2005 and 2% in 2007 and 2008) and the implementation of structural reforms. After having reduced its deficit to 2.9% in 2005, Germany plans to bring it down to 1.5% in 2008. Only then, the Commission says, will Germany have a sufficient margin of security to respect the SGP threshold of 3%, but its debt will remain at 65% in 2008, half a point less than its current level.
Between 2004 and 2008, Italy plans to reduce its deficit from 2.9% to 0.9%, thanks to growth forecasts between 2.1% and 2.3%, which the Commission finds “somewhat optimistic”. The latter is concerned about the uncertainty surrounding certain exceptional measures, as well as the magnitude of the adjustment needed for the post-2005 years. On the whole, the Commission notes that “budgetary objectives of the programme do not provide a sufficient margin of security against the risk of exceeding the 3% reference value, at least until 2006”. The rate of debt reduction (from 106% of GDP in 2004d to 98% in 2008) does not satisfy the Commission either, which considers that Italy should make a greater effort to come closer to budgetary balance by 2008.
Belgium, whose budget is already in balance, should be in surplus from 2007 (0.3%) and manage to reduce its debt from 96.6% in 2004% to 84.2% in 2008. The Commission welcomes the fact that Belgium has reduced its debt while keeping budgetary equilibrium, but considers that the measures envisaged by the Belgian government to offset the lost of tax receipts in 2006 are “rather vague”. It also warns against excessive spending in the health system.
Finally, the convergence programmes of Poland and Slovakia for 2004-2007 are lacking in ambition, the Commission says. Generally speaking, the Polish programme is less ambitious than its previous programme, the Commission explains, voicing concern about the over-evaluation of growth for 2007. Poland predicts average growth of 4.9% in 2005 and 2006, and of 5.6% in 2007. According to the Commission, the budgetary objectives of Warsaw - which plans to bring its deficit down below 3% in 2007 (2.2%) - will largely depend on the complete implementation of public finance reform, some points of which have still to be approved by the Parliament.
In Slovakia, return to budgetary deficit in line with the Stability Pact is still foreseen for 2007 (at just 3%). According to the Commission, this goal could be more ambitious because of the additional budgetary receipts in 2004 and possibly in years to come. The rapid fall in inflation still remains to be seen, however (from 7.8% in 2005 to 2.5% in 2007), and some long term public finance risks remain with a predicted rise in the public deficit (from 43% in 2004 to 45.5% in 2007).