Brussels, 16/02/2005 (Agence Europe) - After examining the multi-annual programmes of five Member States in January (EUROPE of 12 January, p.13), then of eleven others (EUROPE of 3 February, p.10), the Commission almost completed its analysis, on Wednesday, of implementation of the requirements of the Stability and Growth Pact in the EU. Generally speaking, it is pleased with the medium-term results of Spain and the effort made by Cyprus with a view to correcting its excessive deficit in 2005. The roads being followed by Slovenia, Latvia, Lithuania and the United Kingdom for budgetary improvements do not provide all medium-term guarantees but the prospects for these Member States appear generally balanced, it states. On the basis of Hungary's convergence programme for 2004-2008, the Commission, however, recommended that the Hungarian government take additional measures within the context of the excessive deficit procedure initiated last year against the country. Finally, the Greek programme will be examined once Athens has forwarded an amended version, taking into account the recommendation on excessive deficit, and that of Portugal will come after the parliamentary elections on 20 February.
For 2004-2008, Spain presents a “satisfactory” stability programme tabling on growth of 3% from 2006 and should allow budgetary surplus between 0.1% in 2005 and 0.4% of GDP at the end of the period. Following reclassification of the Spanish public broadcasting company (RTVE) in the sector of public administration and takeover of the debt of the national railway company (RENFE), Spain will have a public deficit of 0.8% for 2004. Debt will be reduced from 49.1% in 2004 to 40% in 2008, which, the Commission says, is realistic. If the programme contains ”extremely positive elements”, as Joaquin Almunia put it, the Commission nonetheless stresses that Madrid should work with “greater determination” on pension reform.
Thanks to ambitious adjustment measures, Cyprus should keep its commitments and bring its deficit below 3% from 2005 (2.9%). The convergence programme 2004-2008 foresees a reduction in the Cypriot deficit of 43.8% in 2004 to 0.9% in 2008 and should bring the debt to below 60% at the end of the period (58.1%). For the Commission, this budgetary strategy remains subject, especially in 2005, to the economic prospects of Cyprus' trade partners and to the evolution of oil prices. Results notched up by Cyprus in 2004 with regards social negotiations and certain key measures are nonetheless of a kind to reassure the Commission on Nicosia's ability to attain its goals. In the longer term, it considers, however, that the viability of public finances would benefit from the active pursuit of reform in the retirement and health systems.
The Commission congratulates Latvia which - a noteworthy fact in the context of budgetary results - recorded a reduction in the deficit above the aim set out in its previous convergence programme in May 2004. According to the updated version of the programme for 2004-2007, the deficit will continue to fall by 0.1% annually and will fall from 1.5% to 1.4% at the end of the period. After being 8.1% in 2004, Latvia envisages growth of 6.5% on average between 2005 and 2007, which the Commission finds “credible”, considering that the information forecasts are “slightly under-estimated”. In 2007, the debt will have slightly increased, from 14.2% in 2004 to 15%, but will still be largely below the threshold set out in the Pact. Generally speaking, the Commission, however, expresses doubt about the trajectory of Latvia's budgetary improvements, which does not guarantee a position close to balance in the medium term and respect of the 3% ceiling in the event of economic fluctuations.
Lithuania's public finance improvement could also run the risk of not allowing the country to have a sufficient margin of security or to reach the aim of balance in the medium term, the Commission states. It therefore advises Lithuania to continue reduction of its deficit (which must fall from 2.5% in 2004 to 1.5% in 2007) by following any additional recipe or expenditure not used for this strategy. Over the whole of the period, the debt must, however, keep at its current level (20.1%) and the macroeconomic scenario proves “plausible” with growth of 6.5% in 2004, gradually slowing down to reach 6% in 2007.
If the growth scenario by way of 4% between 2004 and 20076 seems “plausible” in Slovenia, the Commission doubts the “optimistic” forecasts in terms of inflation. At the budgetary level, the Slovene convergence programme foresees a fall in deficit from 2.1% in 2004 to 1.1% in 2007, a year during which an expected rise in receipts should allow the most significant fall. Despite a rise to 30.9% in 2005, the debt should return to 29.7% in 2007, well below the 60% imposed. Commitments taken by the government in favour of budgetary discipline contribute to making Slovenia's budgetary forecasts “generally balanced” even if the aim of balance in the medium term and the safety margin are unknown, said the Commission.
Given revenue from the sales of UMTS licences in the UK, London is set to record a 2.9% deficit on the current financial year 2004/2005, back down to 1.7% in 2008/9. Growth of GDP will fall from 3.25% in 2004 to around 2.5% in 2007, which is plausible and, the Commission believes, is based on sensible public finance forecasts. Here again, the Commission does not see it as certain that the objective of balance or surplus in the medium term can be achieved, likewise sufficient margin of safety to avoid the 3% of GDP ceiling. The debt is set to increase from 40.9% currently to 42.8% in 2008-2009. Commissioner Almunia said, however, that in the long term, British prospects were “far better than those of certain members of the euro zone”.
Looking at Hungary's convergence programme, the Commission also adopted a recommendation on the basis of article 104 paragraph 7, prescribing new measures to fight its excessive deficit. In its updated programme, Hungary anticipates a deficit of 4.7% in 2005 and 2.8% in 2008, but the Commission feels that the objective of coming back under 3% by the end of the period will call for extra measures, representing half a percentage point. “With a few extra efforts, Hungary should be able to correct its deficit by 2008 and get back to healthier public finances, in the interest of the country and of its future generations”, said Commissioner Almunia. He feels that it would be “very wise” to increase the “emergency reserve” provided for in the 2005 budget and only to use it gradually, when the deficit objective for 2005 is looking likelier. He also recommended that Hungary “does not introduce any more tax cuts”.
Concluding positively, Mr Almunia said that the public finances in the economic and monetary union were certainly not brilliant, but that the examination of the 23 multi-annual programmes showed that many Member States are making “real efforts”.