Stabiliteitspact: Nederlandse bezuinigingen dienen als voorbeeld voor Griekenland, Frankrijk en Portugal (en)

Having examined their updated stability programmes[1], the European Commission finds that overall Spain and Ireland have sound budgetary strategies and can be considered as providing good examples of fiscal policies in compliance with the Stability and Growth Pact.

The Netherlands is also expected to respect its medium-term budgetary objective throughout the programme period after having made major adjustments in the past two years, which should be built on to maintain a strong budgetary position also in 2006 and thereafter, particularly in view of the better-than-expected budgetary results for 2005 and stronger growth in 2006.

Greece, France and Portugal, which are subject to the excessive deficit procedure, present strategies that, if successful, would enable them to put their finances on a sound footing in the medium term although, in the case of France and Portugal, further efforts seem needed, and Greece is still struggling with statistical revisions, which might somewhat affect the otherwise significant reduction of its deficit.

" All six countries have set themselves medium-term objectives for their public finances that are in line with the revised Stability and Growth Pact. Spain and Ireland continue to present a winning combination of strong growth and fiscal discipline. The Netherlands show that determined action can ensure a rapid and lasting correction of fiscal imbalances. These examples should encourage other countries, such as Greece, France and Portugal, to pursue their efforts to bring their public finances in order," said Economic and Monetary Affairs Commissioner Joaquín Almunia i.

FRANCE

France submitted a new update of its stability programme, covering the period 2005-2009, on 13 January 2006. Based on a plausible macroeconomic scenario (although somewhat favourable for 2006), the programme aims to bring the public accounts back to balance by 2010 from an expected outcome of 3.0% of GDP in 2005, after having been above the Treaty reference value for three years.

The budgetary adjustment would be achieved mainly by means of expenditure restraint, by imposing ceilings for the different components of general government.

France has set itself a medium-term objective (MTO)[2] of a balanced budget in structural terms (i.e. in cyclically-adjusted terms and net of one-off measures), which is more demanding than required by the Stability and Growth Pact.

But to ensure that the targets are reached and the correction is permanent and sustainable, additional measures in 2006 seem to be necessary. From 2007 onwards, progress towards the MTO is in line with the 0.5% benchmark set in the Pact although the bulk of the effort is delayed until the later years. The objective of a budget on balance is also not reached during the programme period. Only at the very end of the programme would France give itself a safety margin against breaching again the 3% of GDP deficit threshold with normal macroeconomic fluctuations.

The debt-to-GDP ratio is expected to reach 66% this year and to decrease to 62.8% in 2009, which is commendable given the projected costs of an ageing population which put the French public finances at a medium risk in the long-term.

Overall, the plan to reduce the deficit well below the 3% reference value in the coming years and the emphasis on the reduction of the debt are both ambitious and welcome. But for this to happen, it would be appropriate for France to secure a fall in the general government deficit below 3% of GDP in 2006 in a credible and sustainable manner; identify and implement the necessary measures to ensure fiscal consolidation towards the MTO thereafter; and reinforce the expenditure ceiling framework.

GREECE

Greece submitted a new update of its stability programme, covering the period 2005-2008, on 21 December 2005. The update sets a deficit target below 3% this year, in accordance with the Council recommendation of February 2005. This would be achieved by means of both higher revenues and expenditure restraint.

Greece's MTO is a balanced budget in structural terms (in cyclically-adjusted terms and net of one-off measures), which is in line with the Pact. But progress towards the MTO falls short of the 0.5% annual adjustment benchmark set in the Pact, meaning that the objective of a budget on balance will not be reached within the programme period. A safety margin against breaching again the 3% deficit threshold with normal macroeconomic fluctuations does not seem to be provided.

Despite the considerable correction effort in 2005, when the deficit is expected to have fallen to 4.3% from 6.6% the previous year, the budgetary outcomes might be less good than projected. The macroeconomic scenario is a rather favourable one and information is lacking as to the measures envisaged towards the end of the programme. Moreover, there are still some pending statistical issues related with an overestimation of surpluses of social security, which might lead to the revision of the 2005 deficit with possible carry over effects in 2006 and beyond.

Greece's debt is expected to have fallen to 107.9% of GDP in 2005, making it now the second-biggest in the Union after Italy's. The government plans to bring it below the 100% level in 2008 which is commendable, especially in view of the high risks that future pension and other age-related costs put on the long-term sustainability of the country's finances.

Overall, the programme is consistent with the correction of the excessive deficit in 2006, provided that the envisaged adjustment is fully implemented and depending on the impact of possible further statistical revisions. It would also be appropriate to pursue further structural adjustment towards the MTO; ensure that the debt ratio is reduced at a satisfactory pace towards the 60% of GDP reference value; control public pension expenditure and implement the approved pension reforms so as to ensure long-term sustainability, and further improve the collection and processing of public finance statistics.

IRELAND

Ireland submitted a new update of its stability programme, covering the period 2005-2008, on 7 December 2005. Based on a plausible macroeconomic scenario, the programme targets a general government deficit of 0.6% of GDP in 2006 and 0.8% in 2007-2008, after a surplus of around ¼% in 2005. The revenue ratio is on a declining trend, while the expenditure ratio initially increases and goes back to its 2005 level only towards the end of the programme period.

Ireland's medium-term objective (MTO) is one of close to balance in structural terms (i.e. in cyclically-adjusted terms and net of one-off measures), which is also more demanding than required by the Stability and Growth Pact.

While the programme sets decreasing primary surplus targets and sees the emergence of a small deficit, the actual outcomes could be better than foreseen, in particular in 2006. In any case, the planned budgetary stance is sufficient to maintain the MTO and to provide a safety margin against breaching the 3% of GDP deficit threshold with normal macroeconomic fluctuations throughout the programme period.

The debt ratio, currently estimated at 28% of GDP, should stabilise at around that level. With regard to the sustainability of public finances, Ireland appears to be at medium risk given the significant future rise in age-related government expenditure.

Overall, the updates programme confirms the commitment of the Irish government to maintaining sound public finances. Its fiscal position can be considered sound and the budgetary strategy provides a good example of fiscal policies conducted in compliance with the Stability and Growth Pact. Yet, it would be appropriate for Ireland to continue to implement measures to address the long-term budgetary implications of ageing populations.

NETHERLANDS

The Netherlands submitted a new update of its stability programme, covering the period 2005-2008, on 22 December 2005. Based on a plausible macroeconomic scenario, the programme sees the general government deficit rising slightly from 1.2% of GDP in 2005 to 1.5% in 2006 before decreasing again to around 1% in 2008.

The medium-term objective of the Netherlands is a deficit between 0.5% and 1.0% of GDP in structural terms (i.e. in cyclically-adjusted terms and net of one-off measures), which is in line with the Pact.

Given that the risks attached to the budgetary targets are broadly balanced, the budgetary stance in the programme seems sufficient to ensure that the MTO is maintained and that there is a safety margin against breaching the 3% of GDP deficit threshold with normal macroeconomic fluctuations throughout the programme period.

However, in view of a strong economic recovery from _% in 2005 to 2½% thereafter and of a deficit outcome in 2005 which might be better than the -1.2% foreseen in the programme (according to the most recent estimates presented to the Dutch Parliament, the deficit is likely to be near -_%), it would be appropriate to maintain a strong budgetary position in 2006 and thereafter.

The government debt ratio is projected to decrease slightly from its estimated level of 54% of GDP in 2005. With regard to the sustainability of public finances, the Netherlands appears to be at low risk but further budgetary consolidation may be necessary to fully offset the impact of ageing.

Overall, the Dutch authorities' strategic objective to achieve sound public finances to support sustainable economic growth and absorb the costs of ageing is a commendable one. After exceeding 3% in 2003, the deficit is now well below that threshold and maintains the MTO objective throughout the programme period. But also in view of the better-than-expected results in 2005, it would be appropriate in 2006 and thereafter to maintain a strong budgetary position.

PORTUGAL

Portugal submitted a new update of its stability programme, covering the period 2005-2009, on 15 December 2005. Based on favourable growth assumptions, especially in the outer years of the programme, the programme aims at correcting the excessive deficit by 2008 on the basis of structural and permanent measures with substantial steps in each year.

The medium-term objective (MTO) for the budgetary position set in the programme is a deficit of 0.5% of GDP or better in structural terms (i.e. in cyclically-adjusted terms and net of one-off measures), which is in line with the Pact.

The correction of the excessive deficit by 2008, as recommended by the Council in September 2005, hinges upon a full implementation of all the measures announced in the programme for 2006 and on further significant measures for 2007 and beyond. Provided that the risks to the budgetary targets are addressed, the pace of the adjustment towards the MTO is in line with the Pact's 0.5% benchmark although it will not be reached within the programme period, as acknowledged in the programme itself.

Government debt is currently estimated at around 65% of GDP and will increase until 2007, to some 69%. With regard to the sustainability of public finances, Portugal appears to be at high risk so that a comprehensive strategy to deal with the challenge posed by an ageing population seems necessary.

Overall, the programme is broadly consistent with a correction of the excessive deficit by 2008 on condition that the announced measures are fully implemented and that further measures still necessary to underpin the fiscal strategy are adopted. It would be appropriate for Portugal to adopt and implement with rigour the structural measures envisaged in the programme; control expenditure and improve the budgetary process; improve long-term sustainability; and bring the debt ratio onto a firm downward path.

SPAIN

Spain submitted a new update of its stability programme, covering the period 2005-2008, on 30 December 2005. Based on macroeconomic scenario that is plausible, the update aims at maintaining high budgetary surpluses over the programme period.

The medium-term objective (MTO) is a balanced budget in structural terms (i.e. in cyclically-adjusted terms and net of one-off measures), which is more demanding than required by the Pact.

Given that the risks attached to the budgetary targets are broadly balanced, the fiscal stance in the programme is consistent with its aim of maintaining the MTO throughout the programme period, indeed exceeding it by a large margin and providing a safety margin against breaching the 3% of GDP deficit threshold with normal macroeconomic fluctuations.

The debt ratio, currently estimated at 43% of GDP, is planned to decline gradually to 36% in 2008, a prudent stance bearing in mind the significant projected budgetary costs of an ageing population. The long-term sustainability of Spain's public finances in this respect appears to be at a medium risk since the accumulation of assets in a social security reserve fund somewhat limits the future increase in pension expenditure.

Overall, the budgetary position can be considered sound and the budgetary strategy provides a good example of fiscal policies conducted in compliance with the Pact. Yet it would be appropriate for Spain to implement the envisaged measures to address the long-term budgetary implications of ageing populations.

The country-specific Commission assessments are available at:

http://europa.eu.int/comm/economy_finance/about/activities/sgp/year/year20052006_en.htm

GREECE

Comparison of key macroeconomic and budgetary projections

SPAIN

Comparison of key macroeconomic and budgetary projections

FRANCE

Comparison of key macroeconomic and budgetary projections

IRELAND

Comparison of key macroeconomic and budgetary projections

NETHERLANDS

Comparison of key macroeconomic and budgetary projections

PORTUGAL

Comparison of key macroeconomic and budgetary projections

[1] According to Council Regulation (EC) No 1466/97 on the strengthening of budgetary surveillance and coordination of economic policies (as amended by Regulation No 1055/2005), Member States that have adopted the euro must submit annual updates of their stability programmes. Member States that have not yet adopted the euro submit convergence programmes.

[2] Country-specific MTOs for euro area and ERM II Member States are recommended within a range between -1% of GDP for low debt / high potential growth countries and balance or surplus for high debt / low potential growth countries. Member States may present more ambitious MTOs if they feel their circumstances call for it. For Member States outside of the euro area and not participating in ERM II, country-specific MTOs are defined with a view to ensuring convergence and respect of the levels set in the Treaty.