Brussels, 18/02/2009 (Agence Europe) - On Wednesday 18 February, the stability of eight Euro-zone member states and nine convergence programmes of a further nine EU countries were examined by the European Commission. The Commission presented recommendations for each of these updated programmes (see other article). These recommendations analyse the measures taken by member states in their recovery plans and must be targeted, timely and temporary. The Commission also adopted reports identifying excessive deficits in six of these countries (Spain, France, Greece, Ireland and Malta), which overshot the Stability and Growth Pact (SGP) reference threshold last year.
Drawn up on the basis of Article 104§3 of the treaty, these reports precede the formal triggering of the excessive deficit procedure and will be submitted to the Economic and Finance Committee (EFC), which will give its view in two weeks' time. During its 25 March meeting, the Commission will recommend to the Council to point out the existence of an excessive deficit (Article 104§5 and 6) and to advocate an adjustment trajectory (Article 104§7) for some of these countries. Finance ministers will then have to examine these factors during their informal meeting on 3-4 April in Prague. The pragmatic implementation of SGP rules will allow for the economic context to be taken into account, as well as other pertinent factors as an excessive debt is identified and an adjustment timetable and expected rate of adjustments is illustrated. Relevant factors only apply if the overshoot is temporary and close to the 3% reference value, which would enable the Commission to recommend that most of these countries correct their excessive debts in accordance with a calendar that still needs working out (only Malta will be exempt from this). The United Kingdom, which is already subject to an excessive debt procedure, will be sent another recommendation during the 25 March meeting.
The current economic situation, however, would suggest that the Commissioner for economic and monetary affairs takes a very political approach towards the stages of the procedure. Joaquin Almunia insisted that the launch of a procedure should not be considered as a sanction or criticism. In a press conference on Wednesday, the Commissioner emphasised that, “an instrument that will help the governments and the Member States fight the recession in the short term, preserve the sustainability of the public finances in the medium term and advance towards an exit strategy once the recession will be over”. Although it is possible to launch excessive debt procedure as soon as governments plan to go above the 3% during the course of the year, the Commission will for the time being only target countries that went above this threshold in 2008. According to Almunia, however, it is possible that the economic situation over the next few months will prompt the Commission to revise its position and take preventative action if needs be. So far, countries like Germany and Poland, which did not overshoot the 3% in 2008, escape procedures despite threats to their public finances in 2009 or 2010.
A summary of the Commission's analysis of the stability and convergence plans in the six countries and the stability and growth pact reports:
Ireland. The recession is hitting this country with its full force and its finances have significantly worsened. From a 0.2% surplus in GDP in 2007, the budget deficit reached -6.3% in 2008 and expected to reach -9.5% in 2009 and -9% in 2010, according to the Irish authorities. The Commission said that the Irish Stability Programme envisages a progressive reduction of the deficit to below the 3% of GDP reference value in 2013 and the measures adopted up till now appear appropriate and in compliance with the European recovery plan. It regretted, however, that the measures aimed at improving the budget are not sufficiently detailed. It is therefore inviting, Dublin, above all, to limit any deficit slippage in 2009 and define and implement wide scale budget improvement measures for 2010 and beyond.
Greece. The Commission points out that despite sustained growth, domestic and external macroeconomic imbalances have widened considerably, which has led to very high public and foreign debt. The budget deficit exceeded 3% in 2007 and 2008 and, according to the Greek Stability Programme, it will reach 3.7% in 2009 before falling to 3.2% of GDP in 2010 and 2.6% by 2011 at the latest.
Greece cannot afford a budget impetus plan because of its very high levels of debt and imbalance in current operations, believes the Commission, noting that no recovery measures have been decided in Athens. Greece is urged to make a substantial improvement in its budget in 2009, particularly if the economic situation proves to be better than forecast.
In its report on the budget situation vis-a-vis the SGP, the Commission says that the overshoot of the 3% target is neither temporary nor exceptional because it does not arise from a serious economic recession as defined by the Stability and Growth Pact and Greece will therefore have to make adjustments.
Spain. The sharp contraction of the economy has impacted on employment and the public purse, leading the Spanish authorities to take discretionary measures to stimulate the economy (equivalent to 2.25% of GDP in 2009). In 2008, Spain had a budget deficit of 3.4% of GDP, which will rise to 5.8% in 2009 under the Spanish Stability Programme and then gradually ease to below 4% in 2011 (the Commission says Spain's macroeconomic forecasts are optimistic and fears that it will not be possible to reduce the deficit as planned). Spain is urged to avoid any further deterioration of its public finances in 2009.
Although the deficit remained close to the 3% GDP target in 2008, GDP grew at more than 1% and it cannot be said therefore that this deficit results from a serious economic recession, and the overshoot of the 3% mark is not temporary so corrective action will be imposed on Spain.
France. France's 1.3% GDP economic recovery plan is targeted, well-timed and temporary and therefore appears to conform with the European Economic Recovery Plan, explains the Commission. France's budget deficit is reported to have reached 3.2% in 2008 and is expected to grow to 4.4% in 2009, easing back to below 3% in 2011, according to the French government's new forecasts. Based on distinctly more better macroeconomic hypotheses, the programme forecasts that public finances will be improved through restrictions, particularly in 2010. The Commission invites France to avoid any further deterioration of public finance in 2009, introduce the planned structural adjustments in 2010 and speed up budget tightening when the economy returns to growth.
Although the 2008 deficit was close to the 3% GDP reference value, it did not arise from exceptional circumstances (insufficient consolidation was made before the crisis ) and it is not temporary because it is forecast to remain above the 3% mark for the next two years, notes the Commission in its report on application of the SGP. France will therefore be asked to correct its excess deficit over a timeframe yet to be decided.
Latvia. Latvia has been bailed out by the EU and the International Monetary Fund in support of its balance of payments and is experiencing severe recession. The Commission says the budget targets set out in the Latvian Convergence Programme reflect the detailed conditions set out in the country's economic stabilisation plan decided upon in December 2008 when the macroeconomic aid package was granted. After rising above 3% in 2008, the programme foresees a deficit of 5.3% in 2009 and 4.9% in 2010 (the Commission is forecasting a deficit of 6.3% and 7.4% in 2009 and 2010), before returning to below 3% in 2011. Latvia is invited to meet the commitments it has promised in return for the international aid package and to submit to parliament before the end of next month the details of the supplementary budget adopted on 12 December 2008.
In its report on the SGP, the Commission notes that the deficit remained close to 3% in 2008, but will rise above that level in 2009 and 2010. This means that the deficit criterion under the SGP has not been met.
Malta. Malta's budget deficit is expected to reach 3.3% of GDP in 2008 according to the Stability Programme (-3.5 % according to the Commission), but will return to below the SGP threshold in 2009 onwards (-1.5% and -0.3% in 2010 according to the government of Malta). The Commission comments that the government measures to respond to the crisis are in line with the European Economic Recovery Plan and seem to be appropriate. It notes dangers for the deficit and debt targets, however. The Commission is forecasting a budget deficit of 2.6% in 2009 and 2.5% on 2010 and invites La Valetta to return to the budget tightening programme set out in its programme and reduce its debt levels.
As the 2008 deficit is above the 3% mark, the Commission also adopted a report under the excess deficit procedure. Although the 2008 deficit cannot be seen as exceptional because it arises from special public spending decisions rather than the economic recession as such, the overshoot is slight and can be considered as temporary. Examination of all the relevant issues appears to be positive and Malta should therefore be covered by the next stages in the procedure. (A.B. trans fl)