The European Commission has examined the updated Stability and Convergence Programmes of Ireland, Greece, Spain, France, Latvia and Malta.

Against the background of the ongoing sharp economic downturn, budgetary positions are estimated to have deteriorated markedly in 2008 and to continue deteriorating in 2009 in Ireland, Spain, France and Latvia. In Spain and France this also reflects significant economic stimulus packages adopted in line with the European Recovery Plan that called for timely, targeted and temporary fiscal measures in Member States with fiscal room for manoeuvre.

Ireland and Malta have taken a number of measures to support the economy as part of a broader consolidation effort, which seems adequate in light of the macro-fiscal and competitiveness challenges in these countries. Greece has not adopted fiscal stimulus measures, an adequate posture in view of still positive growth and its high debt and large economic imbalances. Latvia also refrained from adopting short-term fiscal stimulus measures given the need to re-balance its economy and restore investor confidence.

As all six countries had a budget deficit of more than 3% in 2008, the Commission also adopted reports under the corrective arm of the Stability and Growth Pact. In accordance with Article 104.3 of the Treaty, the reports analyse the reasons for the breach of the 3% reference value, taking due regard of the economic background and other relevant factors. The Commission examined another 11 SCPs today, but in all cases the budgetary position remains within the limits of the Pact.

“As a result of the sharp global financial and economic crisis EU public finances are under stress. The crisis brought about a decline in tax revenues and a rise in expenditure (e.g. in unemployment benefits). Public finances deteriorated further as many Member States adopted fiscal measures to support demand and job creation this year, as recommended by the Commission and the Council in the European Recovery Plan. The application of the revised Stability and Growth Pact will help return to sound and sustainable public finances once the recession is over and growth resumes. Our analysis shows that fiscal stimulus measures were adopted across the EU mostly by countries with a budgetary margin of manoeuvre and/or with low debt or external imbalances.

The measures are also generally timely, targeted and temporary. However for the Member States where the general government deficit climbed above the 3% reference value in 2008, the Commission today adopted excessive deficit reports. Exceptional circumstances are considered where appropriate. In all other cases the Commission will use the full flexibility imbedded in the revised Stability and Growth Pact when considering the next steps under the excessive deficit procedure in the weeks to come,” said Economic and Monetary Affairs Commissioner Joaquín Almunia.

MALTA

Against a backdrop of weakening economic growth, the budget deficit is estimated to have reached 3.3% in 2008, according to the Stability Programme submitted early December (3.5% according to the Commission’s January forecast).

But the programme and the Commission also envisage a return to budgetary consolidation from 2009 onwards. The measures adopted by the government in response to the downturn are in line with the EU Recovery Plan and can be regarded as adequate given the deficit and debt ratios as well as the competitiveness challenge. However, there are risks to the achievement of the deficit and debt targets over the programme period stemming from the favourable macroeconomic scenario, the reliance on volatile revenue, the possibility of expenditure slippages and the lack of information on the consolidation measures in the outer years.

The debt ratio is targeted to fall gradually over the programme period to below the 60% but is subject to the risks mentioned above.

In view of the Commission assessment, Malta is invited to (i) resume fiscal consolidation as envisaged in the programme and ensure that the general government debt ratio is reduced accordingly, by spelling out the measures underlying the planned consolidation in the outer years; (ii) strengthen the medium-term budgetary framework and enhance the efficiency and effectiveness of public spending, including by accelerating the design and implementation of a comprehensive healthcare reform.

As the 2008 deficit is above the reference value, the Commission also adopted a report under the excessive deficit procedure. It concludes that, although the 2008 deficit remains close to the reference value and the planned excess can be considered temporary, the excess cannot be qualified as exceptional within the meaning of the Treaty and the Stability and Growth Pact as it reflects specific expenditure decisions rather than the impact of the economic downturn. However, on balance the examination of all the relevant factors seems positive.

The country-specific opinions are available at:

http://ec.europa.eu/economy_finance/thematic_articles/article13960_en.htm

Background on the Stability and Growth Pact and on the EDP procedure

The Stability and Growth Pact requires the Commission to prepare a report whenever the deficit of a Member State exceeds the 3% of GDP reference value. The excessive deficit procedure is regulated by Article 104 of the Treaty and further clarified in Council Regulation (EC) No 1467/97, which is part of the Pact.

The budgetary targets submitted in the programmes and the Commission’s opinion on the same programmes does not prejudge the deadlines for the correction of the deficits that will be recommended at a later. Revised in 2005, the Pact allows for taking into account the economic situation when making recommendations on the pace of the correction.

The reports are addressed to the Economic and Financial Committee, which formulates own opinions within a fortnight. Taking into account its report and the opinion of the Committee, the Commission needs to decide whether to recommend to the Council the existence of excessive deficits and a deadline for their correction.

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