Commissie wil dat Tsjechië haar begroting aanpast (en)

The European Commission i today proposed to European Union finance minsters (ECOFIN) to recommend to the Czech Republic to correct its excessive deficit by 2008, a target well within reach given the strong economic growth enjoyed by the country. The Czech Republic recorded a deficit of 2.9% in 2006, but the budgetary situation worsened again this year putting at clear risk the objective of bringing the deficit below 3% in 2008, as recommended by the ECOFIN in 2004. The finance ministers are expected to consider this draft recommendation at their October meeting.

"The Czech Republic ought to be able to reduce its budget deficit to below 3% in 2008 given the strong economic growth that it has been enjoying and which is higher than anticipated in 2004, when it agreed that deadline with its EU partners. Member States must maintain and possibly strengthen budgetary consolidation in good economic times, not relax the effort which would inevitably see a deterioration of public finances when times get rough," said Joaquín Almunia, European Commissioner for Economic and Monetary Affairs.

Based on a Commission recommendation, in July the ECOFIN Council concluded that the action taken by the Czech Republic to correct its excessive deficit by 2008 was inadequate. The opinion was based, in particular, on the revised Convergence Programme submitted by the Czech government in March which projected a worsening of the general government balance to -4.0% in 2007 and -3.5% in 2008. The outcome for 2006 was -2.9%.

This evolution was in stark contrast with the Council recommendation of July 2004, shortly after the accession to the EU, to bring the deficit to below 3% in 2008 - a target in line with the first Czech Convergence Programme of May 2004 and its update of November 2005. Therefore, the Commission proposed, and the Council endorsed, a recommendation under Article 104(8) of the Treaty stating that the action taken by the Czech government was inadequate.

The main reason for the expected deterioration in 2007 resides mainly in large discretionary increases in social expenditure, which resulted in a pro-cyclical fiscal policy. The previous Czech government target for 2008 was -2.7% of GDP.

On 21 August 2007, the Czech Chamber of Deputies approved a 'stabilisation package' due to come into force next year. The Czech authorities expect the package of fiscal measures to reduce the deficit by 0.3 percentage points of GDP to 3.2% of GDP in 2008 (and 2.8% of GDP in 2009). Such estimates appear plausible but uncertain, in particular because of the major tax reforms planned. Moreover, the excessive deficit would still not be fully corrected in 2008.

New Article 104(7) recommendation

Following on from its earlier assessment on inadequate action, the Commission today proposes that the Council issues a new Article 104(7) recommendation . Given in particular the strong growth that the Czech economy is currently enjoying and that is higher than envisaged in the original July 2004 recommendation, and the small excess with respect to the reference value, the new recommendation keeps the original deadline for the correction of the excessive deficit,.

Specifically, the Czech Republic is recommended to limit the budgetary deterioration in 2007 and put an end to the excessive deficit as rapidly as possible and by 2008 at the latest in a credible and sustainable manner. To this end, it should ensure an improvement in the structural deficit of at least 1% of GDP in 2008 compared to 2007. In addition, the new Article 104(7) recommendation invites the Czech Republic to reach its medium-term budgetary objective of a structural deficit of 1% of GDP also by the original deadline, 2012, at the latest.

The Council is expected to consider the new recommendation at its October 9 meeting. If approved, it will set a six-month deadline for the Czech authorities to take effective action to correct the excessive deficit by 2008 at the latest.

Information on the Commission's recommendation can be found at:

http://ec.europa.eu/economy_finance/about/activities/sgp/main_en.htm

Comparison of key macroeconomic and budgetary projections