Brussels, 22/02/2006 (Agence Europe) - On 22 February, the European Commission examined the stability programmes of seven euro-zone countries - France, Greece, Ireland, the Netherlands, Portugal Spain and Italy - as well as convergence programmes from three countries belonging to the European Exchange Rate mechanism (ERM II) - Cyprus, Lithuania and Malta - and the United Kingdom's. After the third series of assessments, more mixed than those of January and early February, Joaquin Almunia told reporters that, in line with adjustments to the Stability and Growth Pact (SGP), things were quite encouraging (see EUROPE 9107 and 9122). The programmes from Germany and Poland will be examined on 1st March. The Commissioner welcomed the fact that, unlike previous years, Member States' growth forecasts had become more prudent and plausible. He noted, however, longer term risks for some Member States. Mr Almunia will, therefore, remain vigilant and this includes monitoring the measures adopted by Italy following Council recommendations in July 2005. The measures submitted by Rome appear to be adequate, providing they are fully implemented in 2006 and others prepared for 2007.
The modified Stability Pact allows medium-term objectives to be set taking account of particular economic and budgetary circumstances (debt and growth) and varying between a position of balance and deficit that can reach 1% of GDP. Among the twenty three countries examined until now, seven have already reached their medium-term objectives (Spain, Ireland, the Netherlands, Estonia, Denmark, Finland and Sweden) and eight will reach (or almost reach) them during the period covered by their programme (Belgium, Luxemburg, Cyprus, Malta, Lithuania, Latvia, Austria and Slovenia, even the United Kingdom, which did not set an objective). The seven others, most of which are covered by the excessive deficit procedure, will not reach their objective within the timescale of their programmes (France, Greece, Italy, Portugal, the Czech Republic, Hungary and Slovakia).
Cyprus and Malta have been called on to improve the long-term viability of their public finances, but ought to be able to correct their excessive deficits according to the terms provided for, as should the United Kingdom which may have to introduce additional measures in 2006, says the Commission. Given its growth, Lithuania could have been more ambitious. Spain and Ireland have sound budgetary strategies and may be considered as good examples, and the Netherlands are about to become so after carrying out major adjustments these last few years. The Commission is more reserved when it comes to the strategies of Greece, France and Portugal: the latter two countries will have to make further efforts, while Athens is still struggling with statistical revisions.
Cyprus. The deficit, which was 4.1% of GDP in 2004, should fall from 2.5% in 2005 to 0.6% in 2009, the end of the period covered by the updated programme. Debt, currently 70.5% of GDP, should drop sharply to reach 53.5% in 2009, and reduce the high risks of the costs of an ageing population on Cypriot public finances.
Malta. The deficit should return to below 3% this year, going from 3.9% in 2005 to 2.7% in 2006 and 1.2% in 2008. At almost 77% in 2005, debt will begin to drop in 2006, reaching a little above 67% at the end of the period. The country is at medium risk with regard to the impact of the ageing population, but long-term improvement in public finances requires progress in the implementation of pension reforms, notes the Commission.
Lithuania. While speaking warmly of Lithuania from a budgetary point of view, Commissioner Almunia notes that, at the moment, it is not meeting the Maastricht criterion on inflation, on which entry into the euro-zone is conditional. With very large growth of 7% in 2005, 6% this year and 6.8% in 2008, Vilnius forecasts bringing its deficit from 1.54% of GDP to 1% by the end of the period, but the Commission would have liked a more ambitious objective from 2006. The Debt level presents no problem and, thanks to pension reforms, public finances are under no long-term threat.
United Kingdom. Currently running at 3.1%, the British deficit id forecast to fall to 1.5% by 2010/2011, but the Commission notes risks in budget projections and has some doubts as to whether it will be possible to drop below the 3% threshold by 2006-2007. Debt is expected to go from 41% in 2005-2006 to 44.8% in 2007-2008, before declining slightly to 44.4% by the end of the period.
Spain Madrid's programme aims at maintaining high budgetary surpluses over the programme period 2005-2008. The budgetary excess was 1% in 2005 and is expected to drop only a few points thereafter. Debt will follow the same favourable line, settling at 36% in 2008, compared with 43.1% last year. The only blot on the landscape for Spanish public finances is the ageing population, measures to address the budgetary implications of which should be implemented, says the Commission.
Ireland After having a small excess in 2005 (0.25 of GDP), the Irish deficit is expected to be 0.6% in 2006 and 0.8% in 2007 and 2008, while debt of 20% of GDP should remain more or less stable over the period. It would be advisable to pursue measures to mitigate the effects of an ageing population, insists the Commission.
Netherlands According to the Dutch stability programme, the deficit will go from 1.2% in 2005 to 1.5% in 2006, before dropping to 1% in 208. Objectives are in line with the Stability Pact, but which the Commission would have liked to have seen more ambitious, given growth predictions, going from 0.75% in 2005 to over 2% the following years. Debt, which is currently 54% of GDP, will drop significantly (to 53.1% in 2008). The Netherlands are not greatly at risk from an ageing population but new measure may be required.
France The macroeconomic scenario from Paris may be a little optimistic for 2006, says the Commission. To bring the deficit down from 3% in 2005 to 2.9% in 2006, as envisaged by France, additional measures may well be needed according to the Commission. The debt ratio should gradually reduce, falling from 66% this year to 62.8% in 2009. Awaiting notification of France's 2006 budget, the Commission places a great deal of caution on its assessment of the public deficit. It will decide after the 8 May and after the publication of the Spring economic forecast, what to do about the excessive deficit procedure, said Mr Almunia.
Portugal Growth assumptions in the Portuguese programme are optimistic, especially towards the end of the period (2.4% in 2008), while Lisbon should be able to correct its public deficit, currently standing at 6%. The objective of 2.6% by 2008 will depend on the rigorous implementation of the budget in 2006 and additional measures thereafter. Additionally, with a debt which will rise from 65.5% of GDP in 2005 to 69.3% in 2007, before returning to 66.2% in 2009, Portugal is at high risk with regard to an ageing population, and an overall strategy is required, deems the Commissioner.
Greece After reaching 6.6% in 2004 and 4.3% in 2005, Athens predicts a deficit of 2.6% in 2006, but progress towards the medium-term objective falls short of the 0.5% annual adjustment benchmark set in the Pact, says the Commission, for whom the scenario is rather optimistic. Debt, which fell to 107.9% in 2005, is expected to drop below the 100% in 2008, which is appropriate given the high risk associated with the ageing population for long-term public finances. Greece, which is at an advanced stage in the excessive deficit procedure (Article 104§9), has provided the structural efforts required by the Council, but several points will have to be clarified. The Commission is awaiting details of one-off measures for this year, and discussions on statistical data on the social security system and local governments for 2004 and 2005 are continuing, said Mr Almunia.
Italy's efforts should pay off in 2006, but further measures are expected for 2007
Rome is on the right road towards ending its excessive deficit by 2007, and no further measure in the procedure for excessive deficit seems necessary today, even though “we will continue to monitor closely the situation'” said Joaquin Almunia. The objective for 2005 (deficit of 4.3%) seems to have been reached, and the deficit should fall to 3.5% in 2006 and 2.8% in 2007, says the Commission, on two conditions: firstly, the full and effective implementation of the 2006 budget and, secondly, the adoption of significant corrective measures in 2007. As part of the examination of the stability programme, the Commission calls on Rome to provide more information on budgetary measures after 2007 (the deficit forecast for 2009 is 1.9%) and to take action so that the debt ratio drops more quickly (it will go from 108.5% in 2005 to 101.7% in 2009). The Commission considers also that this assessment is surrounded by uncertainty, which can be explained by the political situation and perspectives for growth which it has revised slightly downwards in its interim forecast, to 1.3% in 2006 (see EUROPE 9136). Italy, which has already begun a process of reform, is considered to be at medium risk from the projected budgetary costs of an ageing population.