Brussels, 12/09/2007 (Agence Europe) - As expected (see EUROPE 9496), the European Commission expressed its views on Wednesday 12 September on the British and Czech excess deficits, suggesting to the Council that it repeal the proceedings launched against the United Kingdom in 2005, and that it confirm that the Czech Republic has until the end of 2008 to correct its excess budget deficit.
The United Kingdom has managed to bring its deficit back below the upper limit of 3% of GDP in a credible and sustainable manner, explained EU Economic and Monetary Affairs Commissioner Joaquin Almunia in a press release, adding that the challenge now was to continue to improve the budget and, if possible, to speed up the process by applying the planned restrictions on expenditure, taking advantage of the economic climate which remains favourable.
At the end of the last financial year (1 April 2006 - 31 March 2007), the United Kingdom managed to reduce the budget deficit from 3.2% of GDP in 2005-2006 to 2.7%. This was accompanied by an improvement in the structural balance (in other words the amount remaining in the budget not including the 0.7% GDP one off measures). This performance outstrips the minimum value of 0.5% GDP a year required by the Stability and Growth Pact (SGP) and the positive developments should continue in the next few years, explains the Commission, forecasting a budget deficit of 2.6% of GDP in 2007-2008 and 2.4% GDP in 2008-2009. The Commission comments that the correction is modest if one takes the economic boom into account and it will depend on effective implementation of the restrictions of public spending set out in the British convergence programme. While the public debt remains well below the SGP cut-off point (60% of GDP), the Commission points out that it is gradually increasing. It rose from 39.6% of GDP in 2004-2005 to 42.5% in 2006-2007 and is forecast to continue to rise this year to around 44% of GDP in 2008-2009. The ECOFIN Council of 9 October 2007 will decide on repealing the proceedings against the UK.
At the same meeting, the EU27 finance ministers will also be examining the situation in the Czech Republic, which will again be called upon to correct its excess budget deficit in 2008, explained the European Commission on Wednesday. Commissioner Almunia said that the Czech Republic should be able to reduce its excess budget deficit to below the 3% cut-off point in 2008, given the period of sustained economic growth it is currently experiencing. The economic situation is more favourable at the moment than was forecast in 2004 when the 2008 target date was decided upon, which explains the Commission's insistence on respect of what it feels is a realistic deadline. The Commission is recommending that the Council make a new recommendation to the Czech Republic under Article 104, paragraph 7 of the Treaty.
In July 2007, the Council decided under Article 104, paragraph 8 of the Treaty that the Czech authorities had not taken sufficient measures to meet their obligations to respect the requirements of the Stability and Growth Pact by the end of 2008 (see EUROPE 9465). According to the spring economic forecasts, the public purse (which fell below the 3% level to 2.9% in 2006) would rise above the SGP cut-off point again both this year (to 3.9% of GDP) and next (to 3.6%). Given the improvement in public social spending, the downward trend should be contained in 2007 through austerity measures approved at the end of August and due to come into force in 2008. According to the Czech authorities, the series of measures aims to reduce the deficit by 0.3% to 3.2% in 2008 and to 2.8% in 2009. The Commission, however, feels that this is no more than a partial response because the deficit will remain above 3% in 2008 and the response is also uncertain due to the very scale of the fiscal reform plans. The Commission wants Prague to cut its structural deficit in 2008 by at least 1% of GDP on the 2007 level to reach its mid-term target (of a budget deficit of 1% of GDP) by 2012.
Once the measures against the United Kingdom have been lifted, excess budget procedures will remain in place against five member states (in addition to the Czech Republic). Italy, Poland, Portugal and Slovakia have until the end of this year to return to within the SGP limits, while Hungary has until 2009. (ab)