Brussels, 13/06/2007 (Agence Europe) - It is not a pointless exercise, in these times of good economic performance, to reiterate the common challenges facing the EU in terms of budgetary policies and to move towards a strong political commitment to meet these challenges. In its adoption, on Wednesday, of the report on public finances for 2007, the Commission is stressing this point, and is making proposals to improve the implementation of elements of the preventive arm of the revised Stability and Growth Pact (SGP). On the basis of best practice observed within the EU, these proposals “aim to strengthen the credibility and national ownership of medium-term targets included in the Stability and Convergence programmes and suggest putting the surveillance of fiscal policy in a broader economic perspective”, stresses the communication accompanying the report. Although they are not necessarily new, they have no other ambition than that which the Eurogroup ministers themselves committed to do at their informal meeting of Berlin (EUROPE 9411), which is to achieve their own medium-term targets in 2008 and 2009 and, at the latest, 2010. The application of these proposals will partly be the work of the Commission (in terms of the assessment of budgetary policies, essentially), but more will depend on the member states. The finance ministers will discuss the Commission's report at the July Ecofin.
The situation has “very clearly improved”, from the point of view of the correction of excessive deficits, as only two countries are set still to present an excessive deficit at the end of 2008 (Hungary and the Czech Republic) and due to the fact that the average deficit of the EU fell to 1.7% in 2006 (from 2.4% in 2005), but even so, Joaquín Almunia is “not so optimistic” about the preventive arm of the SGP. Between those which already have good public finances, without any serious problems in the medium or long term, and those which are still working to correct their excessive deficit, “there is an intermediary group of countries, which grows larger every time, which do not have the same political goodwill to make the most of the advantageous moments of the economic cycle”, the commissioner for economic and monetary affairs told the press. Are we repeating the mistakes of the past?
For the Commission, recent years have shown that additional budgetary revenue has not been fully given over to the reduction of deficits, but also used for expenditure which was not included in the stability and convergence programmes. “This development seems to indicate that the political mistakes made in the past could be repeated”, stresses the institution, adding that these 'deviations' in budgetary adjustment from what was planned is not dissimilar from the inappropriate behaviour observed during the years of relatively favourable growth between 1999 and 2001. In a number of member states “the envisaged improvement in the structural balance in 2007 and subsequent years falls short of the 0.5% of GDP benchmark of the revised SGP”, notes the Commission, whose current forecasts indicate that only 10 member states of the EU will have achieved their medium-term targets in 2008 (Spain, Finland, Ireland, Luxemburg and the Netherlands of the eurozone, plus the three Baltic States, Bulgaria and Denmark). The Commission envisages four fields of action and a number of proposals to reinforce the preventive arm:
Placing the budgetary policy within a broader economic perspective. Moving budgetary surveillance across to the more general framework of the Lisbon strategy for growth and employment would help to explain the budgetary programmes more clearly and how the planned modifications for expenditure and taxation will help to put in place priorities for innovation, competitiveness, the reinforcement of private investment and employment. Developments in budgetary policy should increasingly take account of the global macro-economic situation of each country, particularly developments in external imbalance, inflation and competitiveness, the Commission continues. The same goes for the quality and effectiveness of public expenditure, in order that the stability and convergence programmes (and their assessments) systematically stress the direct budgetary costs or savings of the principal reforms envisaged within the national reform programmes.
Reinforcing the national ownership of the medium-term targets. Very little progress has been made in this field since the reform of the SGP, and the medium-term budgetary targets are suffering from a lack of political commitment at national level, according to the Commission. In only a few countries have the stability and/or convergence programmes been put to the vote or drafted by the national Parliament and there is little monitoring of the opinions of the Council. Similarly, the prior coordination between the various levels of administration to define the multi-annual budgetary objectives remains low, the Commission states, calling for action to be taken on these two points. The drafting of a common public document on the multi-annual budgetary projects of all of the member states of the eurozone would help to boost national ownership of the coordination of budgetary policies and would emphasise the contribution of each to the policy mix of the zone.
Reinforcing the reliability and credibility of the medium term budgetary programmes. If the shortfalls observed time and again in the past between budgetary performance and medium-term budgetary plans persist, the credibility of the projections will be harmed. The states must continue to base their projections on realistic hypotheses, as seems to have been the case since the reform of the SGP. They could also provide clearer indications on budgetary trajectory in case of “unchanged policy”, the Commission adds.
Moving towards reliable medium-term budgetary positions. The impact of democratic ageing on the sustainability of public finances is a challenge facing all member states, but one which seems to be more pronounced for some of them (EUROPE 9285). This means that a link must be made between medium-term budgetary policy and longer-term budgetary dynamics, determining the respective contributions of budgetary cleansing on the one hand and employment market reforms, pension systems and health care on the other. (ab)