Brussels, 23/01/2008 (Agence Europe) - The seven stability or convergence programmes examined by the Commission on Wednesday 23 January are, for the most part, satisfactory. The budgetary course taken by Germany, Finland, Luxembourg and the Netherlands is “remarkable” as these eurozone member states have all reached their medium-term objectives, Joaquin Almunia, Economic and Monetary Affairs Commissioner, was pleased to state in a press release the same day. The budgetary situation is also healthy in Sweden but draws more comment in the United Kingdom and Hungary. The risk weighing on long-term sustainability of public finance in Hungary is high. It is moderately high for Germany, Luxembourg, the Netherlands and the United Kingdom, and low for Finland and Sweden, the Commission adds, taking into consideration the current level of indebtedness, the current deficit or budgetary surplus and the estimated costs resulting from demographic ageing (all with unchanged policies). On 30 January, the Commission will examine a second series of programmes (those of France, Italy, Romania and Slovakia are foreseen at this stage). These different programmes will then be discussed during the Ecofin Council on 12 February. The others will be examined by the Commission in February.
Germany. By restoring budgetary balance, Germany reached its medium term objective (MTO) in 2007. Good growth and the unexpected extra tax revenues rather than increased spending have helped to bring about this spectacular reduction in deficit (which was still 1.6% in 2006), the Commission stresses. According to the German stability programme for 2007-2011, the country should again have a slight deficit in 2008 before balancing the budget in 2009 and reaching surpluses at the end of the period. Given cautious forecasts (Berlin predicts growth of 2% in 2008 and 1.5% for the following years), the risks attached to budgetary projections are neutral, the Commission states, inviting Germany to control expenditure and to improve the long-term sustainability of public finances (by continuing to implement economic reforms and by strengthening the budgetary institutions). From 65% of GDP in 2007, the debt will fall to 63% in 2008 and to 61.5% the next year, Berlin estimates.
Finland. The country will again exceed its MTO (budgetary surplus of 2%) over the whole of the period covered by its updated stability programme (2007-2011). Under the impact of a slowdown in growth, which will fall gradually from 4.4% in 2007 to 2.5% in 2010, Finland is expected to have a 3.7% surplus in 2008, 3.6% in 2009 and 2.5% in 2010 (after a budgetary surplus of 4.5% in 2007). The debt, if reduction continues, will reach 27.9% in 2011 compared to 35.3% in 2007.
Luxembourg: Luxembourg has consistently met and even over-achieved its MTO (deficit of 0.8% GDP) between 2007 and 2010. According to the latest revisions of budgetary statistics, the deficit is less than expected. Luxembourg's public finances have been in surplus since 2006 (0.7% of GDP) and should continue to largely exceed the MTO initially foreseen (with a 1% surplus in 2008 and about this same figure for the following years). This scenario seems plausible and the budgetary results could even prove to be better, the Commission estimates, nonetheless recommending that measures be taken - especially with regard to retirement pensions - to combat the effect of an ageing population.
The Netherlands. The country will have no trouble reaching its MTO for the period 2007-2010. If budgetary policy were pro-cyclical in 2007 (despite growth of nearly 3%, deficit rose to 0.4%), the position for 2008 is in line with the requirements of the Stability and Growth Pact, the Commission states. From 2009 onwards, with cautious growth forecasts (1.75%), the Netherlands could notch up better budgetary results than expected (0.5% surplus of GDP in 2008, 0.6 the following year and 0.7% in 2010). The Council is expected to invite the Netherlands to improve long-term sustainability of public finances by securing the budgetary consolidation planned in the programme.
Hungary. Complementary measures could prove necessary to comply with requirements and to come back under the 3% mark end 2009. The Hungarian convergence programme, which covers the period 2007-2011, provides for a tough adjustment effort at the beginning of the period. Budapest's aim is to bring the deficit down from 6.2% in 2007 to 4% in 2008 and then to 3.2% in 2009 to 2.7% in 2010. For the past year, the figure announced is more ambitious than that foreseen in the earlier programme updated in 2006, and seems achievable for the Commission, given the better-than-expected revenues. The latter cannot, however, be counted on in 2008 and achievement of the objectives remains uncertain from 2009 on unless the reform programme is completed successfully. The debt continues to be close to 65% of GDP before falling from 2009. The Commission recommends that the Council should invite Hungary to: - rigorously implement the 2008 budget with adoption, where necessary, of complementary measures; - ensure permanent expenditure moderation by continuing to enhance fiscal rules and institutions; - and improve long-term sustainability of public finance by endeavouring to reach its MTO and pursuing reform of its retirement system.
United Kingdom. The risk of the country's deficit superseding the 3% of GDP ceiling in the near future is increasing and requires budgetary reorganisation, judged insufficient, to be stepped up. According to the updated British programme (2007-08 to 2012-23), the deficit is expected to reach 3% of GDP in 2007-08 and 2.9% in 2008-09. Although the programme includes some slight fiscal tightening and reduction of current expenditure, a Commission press release says that there are risks to this scenario. Most concern is about the deterioration in macroeconomic prospects (from 3% in 2007-08, growth is expected to be 2% during the next tax year) before rising to 2.75% in 2009-10. Debt is expected to continue rising, with 44.8% of GDP in 2008-09, as opposed to 43.9% during the previous tax year. Debt is not expected to fall before 2011-12. Therefore, the viability of British public finance is at a medium level, according to the Commission, which recommends that London takes action to improve the short term budgetary position (particularly for 2008-09) and strengthen the pace of fiscal consolidation throughout the programme period (as well as provide a definition of medium term objectives).
Sweden. Having largely gone beyond its MTO (budgetary surplus of 1%), Sweden is expected to have budget surpluses over the next few years. From 3% in 2007, the convergence programme's updated version for 2007-10 presented by Stockholm last November explains that the surplus is expected to be 2.8% in 2008 and 3.2% in 2009. The Commission fully endorses these forecasts even if the budgetary position for this year appears to be mildly pro-cyclical. The economic situation is still good in Sweden, given that growth is expected to rise to 3.2% this year and 2.5% next year. Debt will continue to fall. From 47% in 2006, it fell to 40% in 2007 and is expected to fall by around 5 percentage points in each of the final years of the programme. (A.B.)