Brussels, 19/02/2008 (Agence Europe) - On Tuesday 19 February, the Commission examined a new series of stability and convergence programmes. All that now remains is to tackle those of Belgium and Poland. For this last assessment, the Commission is encouraging Greece to speed up improvements to its public finances to attain its medium term objective (MTO) by 2010. In a less favourable context, Ireland is invited to safeguard budgetary balance and Lithuania, for which results may be less good than expected, is asked to implement an even stricter budgetary policy. Spain and especially Denmark have sound budgetary situations, the Commission is pleased to state. The Ecofin Council, which analysed the budgetary programmes of eleven member states during its last meeting (EUROPE 9600), will return on 4 March to these programmes and to the nine others adopted by the Commission last week (EUROPE 9601).
Denmark. The Commission believes that the budgetary results of Denmark will be better than predicted in 2007 and that this trend should continue. With a budgetary surplus of 3.8% of GDP for 2007 (compared to an 2.8% target in the previous version), the updated convergence programme for 2007-2010 bargains on a sound surplus position throughout the cycle (3% in 2008, 2% in 2009 and 1.2% in 2010). Although declining, these objectives may prove higher than expected, the Commission states. Their attainment will allow Denmark to easily keep its medium term objective which was reviewed upward and now consists of a structural surplus of between 0.75% and 1.75% of GDP. The country may count on sustained growth for employment and an increase in proceeds linked to the exploitation of oil and gas in the North Sea. GDP growth should, however, fall according to the Danish authorities (by 2% in 2007, the rise in GDP should fall to 1.3% this year and 1.1% next year). Also with a low debt rate (26.6% of GDP in 2007 expected to fall to 18.6% in 2010), Denmark does not have to be invited to take any specific measures, the Commission explains. For this case, it simply notes that the most important political challenge consists in correcting labour shortages, alleviating pressure on costs and taking measures to boost job supply. Given the risk of a pro-cyclical budgetary policy, controlling growth in consumer spending as set out in the programme remains a high priority.
Spain. With comfortable surpluses for the past few years, Spain should continue to exceed its MTO for the whole period covered by the updated stability programme (2007-2010). Spain's budgetary strategy remains sound, the Commission stresses, recommending cautious examination of a number of tax measures. The country, which disposed of 1.8% of GDP budgetary surpluses in 2006 and 2007, aims to achieve a 1.2% surplus for coming years. Although growth remains high (more than 3% between, 2008 and 2010) and largely above the eurozone average, the slowdown in real estate activity calls for caution. According to the Commission, it is of great importance to closely examine the incidence of tax reductions and/or spending increases with a view to maintaining a sound budgetary position and ensuring long-term viability of public finances, on which there is a medium term risk. Still close to 60% of GDP at the beginning of the decade, the Spanish debt is expected to continue to fall to reach 30% of GDP in 2010. Emphasis should also be placed on productivity-enhancing expenditure (R&D, infrastructure and education) which is crucial to underpin a smooth adjustment of the economy, the Commission also recommends.
Greece. The updated version of the Greek stability programme provides for acceleration of the budgetary deficit reduction, but the MTO of a balanced budget will not be reached by 2010. Although Greek authorities hope to reduce the deficit by 2.7% in 2007, to 1.6% in 2008 and 0.8% in 2009 before reaching balance at the end of the financial period, there are high risks weighing on public finances, the Commission states. The significant rise in tax receipts is based on a macro-economic scenario that is relatively optimistic and measures foreseen after 2008 are not entirely defined, it notes. Also, reductions announced for some spending (as a percentage of GDP) are not supported by specific measures and are partially neutralised by plans to increase social allocations. The Commission therefore calls on Athens to be very careful when implementing its 2008 budget, possibly adopting extra measures to speed up improvements and reach the MTO during the programming period. The country should also follow reforms underway of the tax administration and define the budgetary strategy in a longer term perspective and by effectively setting up mechanisms to monitor, control and improve the efficiency of primary spending. Finally, Greece is invited to continue reforms in the healthcare system and reform the pension system. The level of indebtedness, which is expected to fall from 93.4% of GDP in 2007 to 82.9% of GDP in 2010, continues to adversely affect the long-term sustainability of public finances.
Ireland. After years of budgetary surpluses which reached +2.9% in 2006, the Irish budgetary position moved closer to balance in 2007 and is expected to turn into a small deficit in 2008 (0.9%) and beyond (1% in 2010). This reflects an adjustment to more normal, but still very healthy, economic growth. From 4.8% in 2007, it is projected to be 3% in 2009 and 4.1% in 2010. Developments in the housing sector and the impact of the economic slow down in the United States and United Kingdom are the main reasons for this downturn. Public debt remains well below the 60% reference value (25.1% in 2007 and 18.7% forecast by 2010. Ireland is invited to keep to the MTO in 2008 and thereafter, by maintaining firm control over expenditures; (ii) in view of the significant projected increase in age-related expenditure, improve the long-term sustainability of public finances by implementing further pension reforms.
Lithuania. The Lithuanian deficit increased from 0.6% of GDP in 2006 to 0.9% in 2007. Despite a high growth rate (9.8% in 2007 and 5.3% in 2008), there will only be modest improvement in public finances in 2008, with a deficit of 0.5% forecast. Although the programme provides for a tightening of fiscal policy to tackle the large external deficit and inflationary pressures, budgetary targets may not be reached, says the Commission, which believes that revenue projections seem optimistic. Debt levels, however, remain low. From 17.6% of GDP in 207, public debt is expected to fall to 14% in 2008. Lithuania should, therefore, achieve significantly better budgetary outcomes in 2008 and beyond than forecast by the programme, by restraining expenditure growth, saving windfall revenues. Tackling inflationary pressures is essential, adds the Commission, recommending promoting wage setting in line with overall productivity gains. (A.B.)