eunbil · GU0N2741 · 2007-07-06 00:00:00 — The Eurogroup recently decided to transform this exercise into a real strategic policy debate, organised just before the crucial decisions on the budgetary plans for the following year are taken in the Member States.6 As agreed in the context of the SGP reform, the Commission and the Member States will step up efforts to further develop the links between mediumterm fiscal policies and long-term budgetary dynamics. Country-specific mediumterm budgetary objectives (MTOs) will better take into account sustainability challenges. The objective is to identify where necessary more ambitious countryspecific MTOs which can help Member States to substantially improve the sustainability of government finances. When assessing SCPs, the Commission will strengthen its analysis of the track record in respecting the budgetary targets of the previous SCPs, focusing on developments in government expenditure. For euro-area countries, consistency between previously set medium-term budgetary targets notably government expenditure targets and annual budgets will also be monitored as part of the Policies. reviews the recent budgetary developments and functioning of the EU fiscal framework. It underlines the ongoing improvement of the budgetary situation and the smooth implementation of excessive deficit procedures. However, the Communication also points out concerns on the part of the Commission as regards the implementation of the preventive arm of the SGP. These relate, notably, to the insufficient fiscal consolidation efforts of Member States not yet at their MTOs in an environment of favourable cyclical conditions. In some Member States, unexpected increases in tax revenue are partly used to finance increases in government expenditure. Such developments raise doubts as to the permanent character of the ongoing fiscal consolidation. 5See Commission report "in EMU 2007" for a detailed analysis of the reasons for the difficulties in respecting budgetary targets set in the SCPs. 6In practice, Member States provide their peers and the Commission with information on the fiscal policy intentions for the following year. On this basis, a discussion takes place assessing the appropriateness of these intentions, both for the country concerned and from the perspective of the euro area as a whole. Against this background, and in a context where most EU countries have just corrected or are about to correct their excessive deficit, the challenge is to use current favourable cyclical conditions to move decisively towards the MTOs. With a view to strengthening the effectiveness of the preventive arm of the SGP, this Communication formulates therefore concrete proposals on the 2005 SGP reform. These proposals will be discussed with Member States in the coming months. They deal with the way governments formulate and implement their budgetary strategies over the medium term, and the way surveillance and coordination of economic and budgetary policies should be strengthened at EU level in order to support the achievement of sustainable budgetary policies which contribute to higher growth and employment. Recent country experience and empirical work have shown that implementing these proposals would effectively support Member States' efforts to converge towards sustainable fiscal positions whilst also delivering more growth and jobs.