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Europaudvalget 2004-05 (2. samling), Finansudvalget 2004-05 (2. samling), Det Politisk-Økonomiske Udvalg 2004-05 (2. samling)
Det Europæiske Råd 22-23/3 2005 Bilag 19, FIU Alm.del Bilag 35, PØU Alm.del Bilag 20
Offentligt

merne af Folketingets Europaudvalg

stedfortrædere.

Journalnummer

400.C.2-0

EUK

21. marts 2005

Til underretning for Folketingets Europaudvalg vedlægges i forbindelse med Det Europæiske

Råd i Bruxelles den 22.-23. marts 2005 forbedring af implementering af Stabilitets- og Vækst-

pagten, 7423/05.

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COUNCIL OF

THE EUROPEAN UNION

Brussels, 21 March 2005

7423/05

UEM 97

ECOFIN 104

REPORT

From :

To :

Subject :

Council (ECOFIN)

European Council, 22-23 March 2005

Improving the implementation of the Stability and Growth Pact

Delegations will find attached the (ECOFIN) Council's report to the European Council "Improving

the implementation of the Stability and Growth Pact" adopted at the extraordinary ECOFIN meeting

on 20 March 2005.

__________

Annex

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ANNEX

Improving the implementation of the

Stability and Growth Pact

- Council Report to the European Council –

This report presents proposals for strengthening and clarifying the im-

plementation of the Stability and Growth Pact, with the aim of improv-

ing the coordination and monitoring of economic policies according to

Article 99 of the Treaty and of avoiding excessive deficits as required by

Article 104(1) of the Treaty.

The Council confirms that the Stability and Growth Pact, built on Treaty

Articles 99 and 104, is an essential part of the macroeconomic frame-

work of the Economic and Monetary Union. By requesting Member

States to coordinate their budgetary policies and to avoid excessive defi-

cits, it contributes to achieving macroeconomic stability in the EU and

plays a key role in securing low inflation and low interest rates, which are

essential contributions for delivering sustainable economic growth and

job creation.

The Council recalls the Declaration on Article III-184 (annexed to the

Final Act of the Constitution), which reaffirmed the European Council’s

commitment to the goals of the Lisbon Strategy - job creation, structural

reforms, and social cohesion – and which stated on budgetary policy :

“The Union aims at achieving balanced economic growth and price sta-

bility. Economic and budgetary policies thus need to set the right priori-

ties towards economic reforms, innovation, competitiveness and

strengthening of private investment and consumption in phases of weak

economic growth. This should be reflected in the orientations of budget-

ary decisions at the national and Union level in particular through re-

structuring of public revenue and expenditure while respecting budgetary

discipline in accordance with the Constitution and the Stability and

Growth Pact.”

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The two nominal anchors of the Pact - the 3% of GDP reference value

for the deficit ratio and the 60% of GDP reference value for the debt

ratio - have proven their value and continue to be the centrepiece of

multilateral surveillance. However, the European Council noted in June

2004 the need to strengthen and to clarify the implementation of the

Stability and Growth Pact, in order to foster transparency and national

ownership of the EU fiscal framework and to improve enforcement of

its rules and provisions.

The Pact has to be applied across countries in a fair and consistent way

and be understood by public opinion. The Council reaffirms that a rules-

based system is the best guarantee for commitments to be enforced and

for all Member States to be treated equally. In strengthening and clarify-

ing the Pact it is essential to secure a proper balance between the higher

degree of economic judgement and policy discretion in the surveillance

and co-ordination of budgetary policies and the need for keeping the

rules-based framework simple, transparent and enforceable.

However, in a European Union of 25 countries, characterised by con-

siderable heterogeneity and diversity and given the experience of 5

years in EMU, an enriched common framework with a stronger em-

phasis on the economic rationale of its rules would allow to better ca-

ter for differences in economic situations across the EU. The objective

is therefore to enhance the economic underpinnings of the existing

framework and thus strengthen credibility and enforcement. The aim

is not to increase the rigidity or flexibility of current rules but rather to

make them more effective.

On this basis, the reform aims at better responding to the shortcomings

experienced so far through greater emphasis to economic develop-

ments and an increased focus on safeguarding the sustainability of

public finances. Also, the instruments for EU economic governance

need to be better interlinked in order to enhance the contribution of

fiscal policy to economic growth and support progress towards realis-

ing the Lisbon strategy.

Following the Commission Communication of 3 September 2004 on

“Strengthening economic governance and clarifying the implementation

of the Stability and Growth Pact”, the Council has worked in order to

make concrete proposals for a reform of the Stability and Growth Pact.

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The Council, in reviewing the Stability- and Growth-Pact provisions,

detected mainly five areas where improvements could be made:

(i)

(ii)

(iii)

enhance the economic rationale of the budgetary rules to improve

their credibility and ownership;

improve “ownership” by national policy makers;

use more effectively periods when economies are growing above

trend for budgetary consolidation in order to avoid pro-cyclical

policies;

take better account in Council recommendations of periods when

economies are growing below trend;

give sufficient attention in the surveillance of budgetary positions

to debt and sustainability.

(iv)

(v)

In making the proposals for a reform of the Stability and Growth Pact,

the Council gave due consideration to enhance the governance and the

national ownership of the fiscal framework, to strengthen the economic

underpinnings and the effectiveness of the Pact, both in its preventive

and corrective arms, to safeguard the sustainability of public finances in

the long run, to promote growth and to avoid imposing excessive bur-

dens on future generations.

In accordance with the Luxembourg Resolution on economic policy co-

ordination, the Council confirms that enhanced coordination of fiscal

policies must adhere to the Treaty principle of subsidiarity, respecting

the prerogatives of national Governments in determining their structural

and budgetary policies, while complying with the provisions of the Trea-

ty and the Stability and Growth Pact.

Ministers indicate in the present report the necessary legislative changes

in order to make operational their views on the reform of the Stability

and Growth Pact. They intend to keep changes to a minimum and look

forward to proposals of the Commission to put their views into effect.

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1. I

MPROVING GOVERNANCE

In order to increase the legitimacy of the EU fiscal framework and to

strengthen support for its goals and institutional arrangements, the

Council considers that Member States, the Commission and the Council,

while avoiding any institutional shift, must deliver on their respective

responsibilities, in particular:

(1)

The Commission and the Council respect the Member States’ re-

sponsibility to implement the policies of their choice within the

limits set by the Treaty, in particular by Articles 99 and 104, while

the Member States have to comply with the recommendations of

the Council;

The Commission has to exercise its right of initiative in a timely

manner and apply the rules effectively, while the Council and the

Member States respect the Commission’s responsibility as guardian

of the Treaty and its procedures;

The Council has to exercise responsibly its margin of discretion,

while the Member States and the Commission respect the Coun-

cil’s responsibility for the coordination of economic policies within

the European Union and its role for the proper functioning of

economic and monetary union;

The Member States, the Council and the Commission should reaf-

firm their commitment to implement the Treaty and the Stability

and Growth Pact in an effective and timely manner, through peer

support and peer pressure, and to act in close and constructive co-

operation in the process of economic and fiscal surveillance, in or-

der to guarantee certainty and effectiveness to the rules of the Pact.

(2)

(3)

(4)

The Council emphasises the importance of improving governance and

strengthening national ownership of the fiscal framework through the

proposals outlined hereafter.

1.1. Cooperation and communication

The Council, the Commission and the Member States should apply the

Treaty and the Stability and Growth Pact in an effective and timely man-

ner. Parties should act in close and constructive cooperation in the pro-

cess of economic and fiscal surveillance in order to guarantee certainty

and effectiveness to the rules of the Pact.

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In the spirit of transparency and accountability, due consideration should

be given to full and timely communication among institutions as well as

with the general public. In particular, in order to foster a frank and con-

fidential exchange of views, the Council, the Commission and the Mem-

ber States should commit to exchange advance information on their in-

tentions at all stages of the budgetary monitoring and excessive deficit

procedure, without prejudice to their respective prerogatives.

1.2. Improving peer support and applying peer pressure

The Council agrees that increasing the effectiveness of peer support and

peer pressure is an integral part of a reformed Stability and Growth Pact.

The Council and the Commission should commit to motivate and to

make public their positions and decisions at all appropriate stages of the

procedure of the Pact.

Peer support and peer pressure at euro area level should be given in the

framework of the coordination carried out in the Eurogroup and be

based on a horizontal assessment of national budgetary developments

and their implications for the euro area as a whole. Such an assessment

should be done at least once a year before the summer.

1.3. Complementary national budgetary rules and institutions

The Council agrees that national budgetary rules should be complemen-

tary to the Member States’ commitments under the Stability and Growth

Pact. Conversely, at EU level, incentives should be given and disincen-

tives removed for national rules to support the objectives of the Stability

and Growth Pact. In this context, the Council points out disincentives

stemming from the impact in the fiscal framework of certain ESA95 ac-

counting and statistical rules.

The implementation of existing national rules (expenditure rules, etc.)

could be discussed in stability and convergence programmes, with due

caution and as far as they are relevant for the respect of EU budgetary

rules, as Member States are committed at European level to respect the

latter, and compliance with EU budgetary rules constitutes the focus of

the assessment of the stability and convergence programmes.

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The Council considers that domestic governance arrangements should

complement the EU framework. National institutions could play a more

prominent role in budgetary surveillance to strengthen national owner-

ship, enhance enforcement through national public opinion and com-

plement the economic and policy analysis at EU level.

1.4. A stability programme for the legislature

The Council invites Member States, when preparing the first update of

their stability/convergence programme after a new government has tak-

en office, to show continuity with respect to the budgetary targets en-

dorsed by the Council on the basis of the previous update of the stabil-

ity/convergence programme and - with an outlook for the whole legisla-

ture - to provide information on the means and instruments which it

intends to employ to reach these targets by setting out its budgetary

strategy.

1.5. Involvement of national Parliaments

The Council invites Member States’ governments to present stabil-

ity/convergence programmes and the Council opinions thereon to their

national Parliaments. National Parliaments may wish to discuss the fol-

low-up to recommendations in the context of the early warning and the

excessive deficit procedures.

1.6. Reliable macroeconomic forecasts

The Council recognises that it is important to base budgetary projections

on realistic and cautious macroeconomic forecasts. It also recognises the

important contribution that Commission forecasts can provide for the

coordination of economic and fiscal policies.

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In their macroeconomic and budgetary projections, Member States, in

particular euro area Member States and Members States participating in

ERM II, should use the “common external assumptions” if provided by

the Commission in due time. Member States are free to base their stabil-

ity/convergence programmes on their own projections. However, diver-

gences between the national and the Commission forecasts should be

explained in some detail. This explanation will serve as a reference when

assessing

a posteriori

forecast errors.

Given the inevitability of forecast errors, greater emphasis should be

placed in the stability/convergence programmes on conducting compre-

hensive sensitivity analyses and/or developing alternative scenarios, in

order to enable the Commission and the Council to consider the com-

plete range of possible fiscal outcomes.

1.7. Statistical governance

The Council agrees that the implementation of the fiscal framework and

its credibility rely crucially on the quality, reliability and timeliness of fis-

cal statistics. Reliable and timely statistics are not only essential for the

assessment of government budgetary positions; full transparency of such

statistics will also allow the financial markets to better assess the credit-

worthiness of the different Member States, providing an important sig-

nalling function for policy errors.

The core issue remains to ensure adequate practices, resources and capa-

bilities to produce high quality statistics at the national and European

level with a view to ensuring the independence, integrity and accounta-

bility of both national statistical offices and Eurostat. Furthermore, the

focus must be on developing the operational capacity, monitoring power,

independence and accountability of Eurostat. The Commission and the

Council in the course of 2005 are dealing with the issue of improving the

governance of the European statistical system.

Member States and EU institutions should affirm their commitment to

produce high quality and reliable budgetary statistics and to ensure mu-

tual cooperation to achieve this goal. Imposing sanctions on a Member

State should be considered when there is infringement of the obligations

to duly report government data.

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TRENGTHENING THE PREVENTIVE ARM

There is broad consensus that periods of growth above trend should be

used for budgetary consolidation in order to avoid pro-cyclical policies.

The past failure to reach the medium-term budgetary objective of ‘close

to balance or in surplus’ calls for a strengthening of the preventive arm

of the Stability and Growth Pact, through a renewed commitment by

Member States to take the budgetary action necessary to converge to-

wards this objective and respect it.

2.1. Definition of the medium-term budgetary objective

The Stability and Growth Pact lays down the obligation for Member

States to adhere to the medium term objective (MTO) for their budget-

ary positions of “close to balance or in surplus” (CTBOIS).

In light of the increased economic and budgetary heterogeneity in the

EU of 25 Member States, the Council agrees that the MTO should be

differentiated for individual Member States to take into account the di-

versity of economic and budgetary positions and developments as well as

of fiscal risk to the sustainability of public finances, also in the face of

prospective demographic changes.

The Council therefore proposes developing medium-term objectives

that, by taking account of the characteristics of the economy of each

Member State, pursue a triple aim. They should firstly provide a safety

margin with respect to the 3% deficit limit. They should also ensure rap-

id progress towards sustainability. Taking this into account, they should

allow room for budgetary manoeuvre, in particular taking into account

the needs for public investment.

MTOs should be differentiated and may diverge from CTBOIS for indi-

vidual Member States on the basis of their current debt ratio and poten-

tial growth, while preserving sufficient margin below the reference value

of -3% of GDP. The range for the country-specific MTOs for euro area

and ERM II Member States would thus be, in cyclically adjusted terms,

net of one-off and temporary measures, between -1% of GDP for low

debt/high potential growth countries and balance or surplus for high

debt/low potential growth countries.

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The long-term sustainability of public finances would be supported by

the convergence of debt ratios towards prudent levels.

Implicit liabilities (related to increasing expenditures in the light of ageing

populations) should be taken into account, as soon as criteria and modal-

ities for doing so are appropriately established and agreed by the Council.

By the end of 2006, the Commission should report on progress achieved

towards the methodology for completing the analysis by incorporating

such implicit liabilities.

The Council stresses however that fiscal policy cannot be expected in the

short term to cope with the full structural effects of demographic ageing

and it invites Member States to pursue their efforts in implementing

structural reforms in the areas related to the ageing of their populations

as well as towards increasing employment and participation ratios.

Medium-term budgetary objectives could be revised when a major re-

form is implemented and in any case every four years, in order to reflect

developments in government debt, potential growth and fiscal sustaina-

bility.

2.2. Adjustment path to the medium-term objective

The Council considers that a more symmetrical approach to fiscal policy

over the cycle through enhanced budgetary discipline in periods of eco-

nomic recovery should be achieved, with the objective to avoid pro-

cyclical policies and to gradually reach the medium term objective, thus

creating the necessary room to accommodate economic downturns and

reduce government debt at a satisfactory pace, thereby contributing to

the long-term sustainability of public finances.

Member States should commit at a European level to actively consoli-

date public finances in good times. The presumption is to use unex-

pected extra revenues for deficit and debt reduction.

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Member States that have not yet reached their MTO should take steps to

achieve it over the cycle. Their adjustment effort should be higher in

good times; it could be more limited in bad times. In order to reach their

MTO, Member States of the euro zone or of ERM-II should pursue an

annual adjustment in cyclically adjusted terms, net of one-offs and other

temporary measures, of 0.5% of GDP as a benchmark. “Good times”

should be identified as periods where output exceeds its potential level,

taking into account tax elasticities.

Member States that do not follow the required adjustment path will ex-

plain the reasons for the deviation in the annual update of the stabil-

ity/convergence programmes. The Commission will issue policy advice

to encourage Member States to stick to their adjustment path. Such poli-

cy advice will be replaced by early warnings in accordance with the Con-

stitution as soon as it becomes applicable.

2.3. Taking structural reforms into account

The Council agrees that, in order to enhance the growth oriented nature

of the Pact, structural reforms will be taken into account when defining

the adjustment path to the medium-term objective for countries that

have not yet reached this objective and in allowing a temporary deviation

from this objective for countries that have already reached it, with the

clear understanding that a safety margin to ensure the respect of the 3%

of GDP reference value for the deficit has to be guaranteed and that the

budgetary position would be expected to return to the MTO within the

programme period.

Only major reforms which have direct long-term cost-saving effects,

including by raising potential growth, and therefore a verifiable positive

impact on the long-term sustainability of public finances, will be taken

into account. A detailed cost-benefit analysis of those reforms from the

budgetary point of view would need to be provided in the framework of

the annual update of stability/convergence programmes.

These proposals should be introduced into Regulation 1466/97.

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Moreover, the Council is mindful that the respect of the budgetary tar-

gets of the Stability and Growth Pact should not hamper structural re-

forms that unequivocally improve the long-term sustainability of public

finances. The Council acknowledges that special attention must be paid

to pension reforms introducing a multi-pillar system that includes a

mandatory, fully funded pillar. Although these reforms entail a short-

term deterioration of public finances during the implementation period,

the long-term sustainability of public finances is clearly improved. The

Council therefore agrees that Member States implementing such reforms

should be allowed to deviate from the adjustment path towards the

MTO, or from the MTO itself. The deviation from the MTO should

reflect the net cost of the reform to the publicly managed pillar, provided

the deviation remains temporary and an appropriate safety margin to the

reference value is preserved.

3. I

MPROVING THE IMPLEMENTATION OF THE EXCESSIVE DEFICIT

PROCEDURE

The excessive deficit procedure should remain simple, transparent and

equitable. Nevertheless, the experience of recent years shows possible

scope for improvement in its implementation.

The guiding principle for the application of the procedure is the prompt

correction of an excessive deficit.

The Council underlines that the purpose of the excessive deficit proce-

dure is to assist rather than to punish, and therefore to provide incen-

tives for Member States to pursue budgetary discipline, through en-

hanced surveillance, peer support and peer pressure. Moreover, policy

errors should be clearly distinguished from forecast errors in the imple-

mentation of the excessive deficit procedure. If nevertheless a Member

State fails to comply with the recommendations addressed to it under the

excessive deficit procedure, the Council has the power to apply the avail-

able sanctions.

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3.1. Preparing a Commission report under Article 104(3)

In order to avoid excessive government deficits, as called for by Article

104(1) of the Treaty, the reports, prepared by the Commission according

to Article 104(3) of the Treaty as a result of its monitoring, form the ba-

sis of the EFC opinion, the ensuing Commission assessment and ulti-

mately the Council decision on the existence of an excessive deficit as

well as on its recommendations, including on the deadlines for the cor-

rection of the deficit.

The Council and the Commission are resolved to clearly preserve and

uphold the reference values of 3% and 60% of GDP as the anchors of

the monitoring of the development of the budgetary situation and of the

ratio of government debt to GDP in the Member States. The Commis-

sion will always prepare a report on the basis of Article 104(3) of the

Treaty. The Commission shall examine in its report if one or more of the

exceptions foreseen respectively in Article 104(2)(a) and (b) apply. The

Council hereafter proposes revisions or clarifications to the scope of

those exceptions.

As foreseen by the Treaty, the Commission shall moreover take into ac-

count in its report whether the Member State’s government deficit ex-

ceeds government investment expenditure and take into account all oth-

er relevant factors, including the medium-term economic and budgetary

position of the Member State. The Council hereafter proposes clarifica-

tions to the concept of “all other relevant factors”.

3.2. An “exceptional and temporary” excess of the deficit over the

reference value

The Treaty provides, in Article 104(2)(a) second indent, for an exception

if an excess over the reference value is only exceptional and temporary

and if the ratio remains close to the reference value.

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Whereas, in order to benefit from that exception, the ratio has always to

remain close to the reference value, Regulation 1467/97 gives definitions

as to when an excess over the reference value, but still close to it, shall be

considered exceptional and temporary: in order to be considered as ex-

ceptional, the excess has to result from an unusual event outside the con-

trol of the Member State and with a major impact on the financial posi-

tion of the general government, or it has to result from a severe econom-

ic downturn. In order for the excess to be temporary, the Commission’s

budgetary forecast must indicate that the deficit will fall below the refer-

ence value following the end of the unusual event or the severe econom-

ic downturn.

A severe economic downturn is presently defined - as a rule - as an an-

nual fall of real GDP of at least 2%. Moreover, in the case of an annual

fall of real GDP of less than 2%, Regulation 1467/97 still allows the

Council to decide that no excessive deficit exists, in the light of further

evidence, in particular on the abruptness of the downturn or on the ac-

cumulated loss of output relative to past trends.

The Council considers that the current definition of “a severe economic

downturn” given in Article 2(2) of Regulation 1467/97 is too restrictive.

The Council considers that paragraphs (2) and (3) of Article 2 in Regula-

tion 1467/97 need to be adapted in order to allow both the Commission

and the Council, when assessing and deciding upon the existence of an

excessive deficit, according to paragraphs (3) to (6) of Article 104 of the

Treaty, to consider as exceptional an excess over the reference value

which results from a negative growth rate or from the accumulated loss

of output during a protracted period of very low growth relative to po-

tential growth.

3.3. “All other relevant factors”

Article 104(3) of the Treaty requests that, in preparing the report on the

non-fulfilment of the criteria for compliance with budgetary discipline,

the Commission “shall also take into account whether the government

deficit exceeds government investment expenditure and take into ac-

count all other relevant factors, including the medium-term economic

and budgetary position of the Member State”. A balanced overall as-

sessment has to encompass all these factors.

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The Council underlines that taking into account “other relevant factors”

in the steps leading to the decision on the existence of an excessive defi-

cit (Article 104, paragraphs (4), (5) and (6)) must be fully conditional on

the overarching principle that - before other relevant factors are taken

into account - the excess over the reference value is temporary and the

deficit remains close to the reference value.

The Council considers that the framework to take into account “all other

relevant factors” should be clarified. The Commission’s report under

Article 104(3) should appropriately reflect developments in the medium-

term economic position (in particular potential growth, prevailing cyclical

conditions, the implementation of policies in the context of the Lisbon

agenda and policies to foster R&D and innovation) and developments in

the medium-term budgetary position (in particular, fiscal consolidation

efforts in “good times”, debt sustainability, public investment and the

overall quality of public finances). Furthermore, due consideration will

be given to any other factors, which in the opinion of the Member State

concerned, are relevant in order to comprehensively assess in qualitative

terms the excess over the reference value. In that context, special consid-

eration will be given to budgetary efforts towards increasing or maintain-

ing at a high level financial contributions to fostering international soli-

darity and to achieving European policy goals, notably the unification of

Europe if it has a detrimental effect on the growth and fiscal burden of a

Member State.

Clearly no redefinition of the Maastricht reference value for the deficit

via the exclusion of particular budgetary items should be pursued.

If the Council has decided, on the basis of Article 104(6), that an exces-

sive deficit exists in a Member State, the “other relevant factors” will also

be considered in the subsequent procedural steps of Article 104. Howev-

er, they should not be taken into account under Article 104(12), i.e. in

the decision of the Council as to whether a Member State has corrected

its excessive deficit.

These proposals should be introduced into Regulation 1467/97.

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3.4. Taking into account systemic pension reforms

The Council agrees that an excess close to the reference value which re-

flects the implementation of pension reforms introducing a multi-pillar

system that includes a mandatory, fully funded pillar should be consid-

ered carefully. Although the implementation of these reforms leads to a

short-term deterioration of the budgetary position, the long-term sus-

tainability of public finances clearly improves.

The Commission and the Council, in all budgetary assessments in the

framework of the EDP, will give due consideration to the implementa-

tion of these reforms.

In particular, when assessing under Article 104(12) whether the excessive

deficit has been corrected, the Commission and the Council will assess

developments in EDP deficit figures while also considering the net cost

of the reform to the publicly managed pillar. Consideration to the net

cost of the reform will be given for the initial five years after a Member

State has introduced a mandatory fully-funded system, or five years after

2004 for Member States that have already introduced such a system. Fur-

thermore, it will also be regressive, i.e. during a period of five years, con-

sideration will be given to 100, 80, 60, 40 and 20 percent of the net cost

of the reform to the publicly managed pillar.

3.5. Increasing the focus on debt and sustainability

In line with the provisions of the Treaty, the Commission has to exam-

ine compliance with budgetary discipline on the basis of both the deficit

and the debt criterion. The Council agrees that there should be increased

focus on debt and sustainability, and reaffirms the need to reduce gov-

ernment debt to below 60 % of GDP at a satisfactory pace, taking into

account macroeconomic conditions. The higher the debt to GDP ratios

of Member States, the greater must be their efforts to reduce them rapid-

ly.

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The Council considers that the debt surveillance framework should be

strengthened by applying the concept of “sufficiently diminishing and

approaching the reference value at a satisfactory pace” for the debt ratio

in qualitative terms, by taking into account macroeconomic conditions

and debt dynamics, including the pursuit of appropriate levels of primary

surpluses as well as other measures to reduce gross debt and debt man-

agement strategies. For countries above the reference value, the Council

will formulate recommendations on the debt dynamics in its opinions on

the stability and convergence programmes.

No change to the existing Regulations is required to that effect.

3.6. Extending deadlines for taking effective action and measures

The Council considers that the deadline for adoption of a decision under

Article 104(6) establishing the existence of an excessive deficit should be

extended from three to four months after the fiscal notification deadline.

Moreover, the Council considers that the timing for taking effective ac-

tion following a recommendation to correct the excessive deficit under

Article 104(7) could be extended from 4 to 6 months, in order to allow

the Member State to better frame the action within the national budget-

ary procedure and to develop a more articulated package of measures.

This could facilitate the adoption of corrective packages of structural (as

opposed to largely temporary) measures. Furthermore, with longer dead-

lines it would be possible to take an updated Commission forecast into

account, so that measures taken and significant changes in growth condi-

tions that could justify an extension of the deadlines would be assessed

together. For the same reasons, the one-month deadline for the Council

to take a decision to move from Article 104(8) to Article 104(9) should

be extended to two months, and the two-month deadline under Article

104(9) should be extended to 4 months.

These proposals would require changes to the relevant Articles of Regu-

lation 1467/97.

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3.7. Initial deadline for correcting the excessive deficit

The Council considers that, as a rule, the deadline for correcting an ex-

cessive deficit should be the year after its identification and thus, normal-

ly, the second year after its occurrence. The Council agrees however that

the elements to be taken into account in setting the initial deadline for

the correction of an excessive deficit should be better specified and

should include, in particular, an overall assessment of all the factors men-

tioned in the report under Art. 104(3).

As a benchmark, countries in excessive deficit will be required to achieve

an annual minimum fiscal effort of at least 0.5 percent of GDP in cycli-

cally adjusted terms, net of one-off measures, and the initial deadline for

the correction of the excessive deficit should be set taking into account

this minimum fiscal effort. If this effort seems sufficient to correct the

excessive deficit in the year following its identification, the initial dead-

line need not be set beyond that year.

However the Council agrees that in case of special circumstances, the

initial deadline for correcting an excessive deficit could be set one year

later, i.e. the second year after its identification and thus normally the

third year after its occurrence. The determination of the existence of

special circumstances will take into account a balanced overall assess-

ment of the factors mentioned in the report under Article 104(3).

The initial deadline will be set without prejudice to the taking into ac-

count of systemic pension reforms and without prejudice to deadlines

applying to new and future Member States.

3.8. Revising the deadlines for correcting the deficit

The Council agrees that deadlines for correcting the excessive deficit

could be revised and extended if unexpected adverse economic events

with major unfavourable budgetary effects occur during the excessive

deficit procedure. Repetition of a recommendation under Article 104(7)

or a notice under Article 104(9) of the Treaty is possible and should be

used if effective action has been taken by the Member State concerned in

compliance with the initial recommendation or notice. This should be

specified in Regulation 1467/97.

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Member States would be required to give evidence of having taken effec-

tive action following recommendations. If effective action was taken in

response to previous recommendations and unforeseeable growth devel-

opments justify a revision of the deadlines for correcting the excessive

deficit, the procedure would not move to the next step. The growth

forecast contained in the Council recommendation would be the refer-

ence against which unforeseeable growth developments would be as-

sessed.

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