# Official Journal C 146/2010

| | ISSN 1725-2423
  doi:10.3000/17252423.C_2010.146.eng |
| --- | --- |
| Official Journal
  of the European Union | C 146 |
| | |
| English edition | Information and Notices | Volume 534 June 2010 |

ISSN 1725-2423

doi:10.3000/17252423.C_2010.146.eng

Official Journal

of the European Union

C 146

English edition

Information and Notices

Volume 534 June 2010

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| Notice No | Contents | page |
| --- | --- | --- |
| | I   Resolutions, recommendations and opinions |
| | OPINIONS |
| | Council |
| 2010/C 146/01 | Council Opinion on the updated stability programme of Spain, 2009-2013 | 1 |
| 2010/C 146/02 | Council Opinion on the updated convergence programme of Sweden, 2009-2012 | 7 |
| 2010/C 146/03 | Council Opinion on the updated stability programme of the Netherlands, 2009-2012 | 12 |
| 2010/C 146/04 | Council Opinion on the updated convergence programme of the United Kingdom, 2009/2010-2014/2015 | 18 |

Notice No

Contents

page

I   Resolutions, recommendations and opinions

OPINIONS

Council

2010/C 146/01

Council Opinion on the updated stability programme of Spain, 2009-2013

1

2010/C 146/02

Council Opinion on the updated convergence programme of Sweden, 2009-2012

7

2010/C 146/03

Council Opinion on the updated stability programme of the Netherlands, 2009-2012

12

2010/C 146/04

Council Opinion on the updated convergence programme of the United Kingdom, 2009/2010-2014/2015

18

| | IV   Notices |
| --- | --- |
| | NOTICES FROM EUROPEAN UNION INSTITUTIONS, BODIES, OFFICES AND AGENCIES |
| | European Commission |
| 2010/C 146/05 | Euro exchange rates | 24 |
| 2010/C 146/06 | Decision to close the formal investigation procedure after withdrawal by Member State — State aid — Germany (Articles 107 to 109 of the Treaty on the Functioning of the European Union) — Commission notice pursuant to Article 108(2) of the TFEU — Withdrawal — State aid C 28/08 (ex N 345/06) — SME-bonus in favour of Magdeburger Artolith GmbH (M.A.L.) (
  1
  ) | 25 |

IV   Notices

NOTICES FROM EUROPEAN UNION INSTITUTIONS, BODIES, OFFICES AND AGENCIES

European Commission

2010/C 146/05

Euro exchange rates

24

2010/C 146/06

Decision to close the formal investigation procedure after withdrawal by Member State — State aid — Germany (Articles 107 to 109 of the Treaty on the Functioning of the European Union) — Commission notice pursuant to Article 108(2) of the TFEU — Withdrawal — State aid C 28/08 (ex N 345/06) — SME-bonus in favour of Magdeburger Artolith GmbH (M.A.L.) (
  1
  )

1

25

| | V   Announcements |
| --- | --- |
| | PROCEDURES RELATING TO THE IMPLEMENTATION OF COMPETITION POLICY |
| | European Commission |
| 2010/C 146/07 | Prior notification of a concentration (Case COMP/M.5864 — Avnet/Bell Micro) (
  1
  ) | 26 |
| 2010/C 146/08 | Prior notification of a concentration (Case COMP/M.5814 — CVC/Univar Europe/Eurochem) (
  1
  ) | 27 |
| 2010/C 146/09 | Prior notification of a concentration (Case COMP/M.5854 — Total Group/HIPS & GPPS business of Polimeri) (
  1
  ) | 28 |
| 2010/C 146/10 | Prior notification of a concentration (Case COMP/M.5871 — KKR/Triton/Ambea) — Candidate case for simplified procedure (
  1
  ) | 29 |
| | OTHER ACTS |
| | European Commission |
| 2010/C 146/11 | Information notice — Public consultation — Geographical indications from Ukraine | 30 |

V   Announcements

PROCEDURES RELATING TO THE IMPLEMENTATION OF COMPETITION POLICY

European Commission

2010/C 146/07

Prior notification of a concentration (Case COMP/M.5864 — Avnet/Bell Micro) (
  1
  )

1

26

2010/C 146/08

Prior notification of a concentration (Case COMP/M.5814 — CVC/Univar Europe/Eurochem) (
  1
  )

1

27

2010/C 146/09

Prior notification of a concentration (Case COMP/M.5854 — Total Group/HIPS & GPPS business of Polimeri) (
  1
  )

1

28

2010/C 146/10

Prior notification of a concentration (Case COMP/M.5871 — KKR/Triton/Ambea) — Candidate case for simplified procedure (
  1
  )

1

29

OTHER ACTS

European Commission

2010/C 146/11

Information notice — Public consultation — Geographical indications from Ukraine

30

| | |
| --- | --- |
| | (1)   Text with EEA relevance |

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(1)   Text with EEA relevance

1

| EN | |
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EN

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I Resolutions, recommendations and opinions

OPINIONS

Council

| 4.6.2010 | EN | Official Journal of the European Union | C 146/1 |
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4.6.2010

EN

Official Journal of the European Union

C 146/1

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COUNCIL OPINION

on the updated stability programme of Spain, 2009-2013

2010/C 146/01

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union,

Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies (1), and in particular Article 5(3) (for SP) thereof,

Having regard to the recommendation of the Commission,

After consulting the Economic and Financial Committee,

HAS DELIVERED THIS OPINION:

| (1) | On 26 April 2010 the Council examined the updated stability programme of Spain, which covers the period 2009 to 2013. |
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(1)

On 26 April 2010 the Council examined the updated stability programme of Spain, which covers the period 2009 to 2013.

| (2) | After more than a decade of strong GDP growth, Spain went through a severe recession in 2009. The downturn was caused by a sharp fall in domestic demand mirroring the narrowing of macroeconomic imbalances accumulated during the boom phase and was aggravated by the global financial crisis. Notably, the credit boom has ended and the private sector has quickly increased its saving rate; the oversized housing sector has been shrinking with both lower prices and activity; the external deficit has declined from high levels; and, inflationary pressures have softened.
  The downturn has led to dramatic employment losses and unemployment rates. The current crisis is taking a heavy toll also on Spanish public finances. Besides falling activity, fiscal developments reflect an accommodative policy response with the implementation of sizeable stimulus measures. Already in 2008, the government deficit exceeded 3 % of GDP and on that basis an excessive deficit procedure was opened in March 2009. The most recent step in this procedure was the issuance by the Council of a revised recommendation under Article 126(7) of the Treaty on the functioning of the European Union (TFEU) in December 2009, whereby Spain is called to end its excessive deficit situation by 2013. The main challenges ahead are the continuation of the adjustments, including the narrowing of the external deficit and rebalancing of the sources of GDP growth away from domestic demand, in particular the housing sector, and towards the external sector. That will require reforms to boost productivity and potential GDP growth, as well as to create jobs in a sustained way. At the same time, competitiveness has to be enhanced, also by means of appropriate cost-reducing policies, i.e. contained wage growth and mark-ups vis-à-vis trading partners. These structural competitiveness problems, together with cyclical factors, reflecting strong economic growth above its main trading partners, fuelled a sizeable current account deficit, which widened rapidly over the last decade, peaking in 2007, when it reached double-digit figures, before dipping to about half in 2009. Finally, if up to now the government sector has cushioned the sharp private sector retrenchment, there is no room to continuing doing so without further compromising fiscal sustainability. Thus, proceeding with a credible and sustained fiscal consolidation strategy is a main challenge for the years ahead. |
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(2)

After more than a decade of strong GDP growth, Spain went through a severe recession in 2009. The downturn was caused by a sharp fall in domestic demand mirroring the narrowing of macroeconomic imbalances accumulated during the boom phase and was aggravated by the global financial crisis. Notably, the credit boom has ended and the private sector has quickly increased its saving rate; the oversized housing sector has been shrinking with both lower prices and activity; the external deficit has declined from high levels; and, inflationary pressures have softened.

The downturn has led to dramatic employment losses and unemployment rates. The current crisis is taking a heavy toll also on Spanish public finances. Besides falling activity, fiscal developments reflect an accommodative policy response with the implementation of sizeable stimulus measures. Already in 2008, the government deficit exceeded 3 % of GDP and on that basis an excessive deficit procedure was opened in March 2009. The most recent step in this procedure was the issuance by the Council of a revised recommendation under Article 126(7) of the Treaty on the functioning of the European Union (TFEU) in December 2009, whereby Spain is called to end its excessive deficit situation by 2013. The main challenges ahead are the continuation of the adjustments, including the narrowing of the external deficit and rebalancing of the sources of GDP growth away from domestic demand, in particular the housing sector, and towards the external sector. That will require reforms to boost productivity and potential GDP growth, as well as to create jobs in a sustained way. At the same time, competitiveness has to be enhanced, also by means of appropriate cost-reducing policies, i.e. contained wage growth and mark-ups vis-à-vis trading partners. These structural competitiveness problems, together with cyclical factors, reflecting strong economic growth above its main trading partners, fuelled a sizeable current account deficit, which widened rapidly over the last decade, peaking in 2007, when it reached double-digit figures, before dipping to about half in 2009. Finally, if up to now the government sector has cushioned the sharp private sector retrenchment, there is no room to continuing doing so without further compromising fiscal sustainability. Thus, proceeding with a credible and sustained fiscal consolidation strategy is a main challenge for the years ahead.

| (3) | Although much of the observed decline in actual GDP in the context of the crisis is cyclical, the level of potential output has also been negatively affected. In addition, the crisis may also affect potential growth in the medium term through lower investment, constraints in credit availability and increasing structural unemployment. Moreover, the impact of the economic crisis compounds the negative effects of demographic ageing on potential output and the sustainability of public finances.
  Against this background it will be essential to accelerate the pace of structural reforms with the aim of supporting potential growth. In particular, for Spain it is important to undertake reforms in the areas of the labour market, education, competition in services and electricity, and R&D efficiency. |
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(3)

Although much of the observed decline in actual GDP in the context of the crisis is cyclical, the level of potential output has also been negatively affected. In addition, the crisis may also affect potential growth in the medium term through lower investment, constraints in credit availability and increasing structural unemployment. Moreover, the impact of the economic crisis compounds the negative effects of demographic ageing on potential output and the sustainability of public finances.

Against this background it will be essential to accelerate the pace of structural reforms with the aim of supporting potential growth. In particular, for Spain it is important to undertake reforms in the areas of the labour market, education, competition in services and electricity, and R&D efficiency.

| (4) | The macroeconomic scenario underlying the programme assumes that GDP will contract by 0,3 % in real terms in 2010 and recover thereafter to real GDP growth of 1,8 % in 2011 and an average of 3 % in 2012 and 2013. The acceleration would be driven mainly by domestic demand, with some additional help coming from the external sector. Assessed against currently available information (2), this scenario appears to be based on slightly favourable GDP growth assumptions for 2010 and markedly favourable ones thereafter. In particular, the envisaged path for domestic demand is likely to be more subdued in the coming years given the strength of the ongoing structural adjustments, notably, but not only, the falling share of housing investment in economic activity. The programme’s projections for moderating inflation appear realistic. Net foreign borrowing needs are foreseen to decline further over the programme period, reflecting the containment of Spain's large external imbalance. |
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(4)

The macroeconomic scenario underlying the programme assumes that GDP will contract by 0,3 % in real terms in 2010 and recover thereafter to real GDP growth of 1,8 % in 2011 and an average of 3 % in 2012 and 2013. The acceleration would be driven mainly by domestic demand, with some additional help coming from the external sector. Assessed against currently available information (2), this scenario appears to be based on slightly favourable GDP growth assumptions for 2010 and markedly favourable ones thereafter. In particular, the envisaged path for domestic demand is likely to be more subdued in the coming years given the strength of the ongoing structural adjustments, notably, but not only, the falling share of housing investment in economic activity. The programme’s projections for moderating inflation appear realistic. Net foreign borrowing needs are foreseen to decline further over the programme period, reflecting the containment of Spain's large external imbalance.

| (5) | The programme estimates the general government deficit in 2009 at 11,4 % of GDP. The significant deterioration from a deficit of 4,1 % of GDP in 2008 reflects to a large extent the impact of the crisis on government finances, including the working of automatic stabilisers, but was also brought about by stimulus measures, in line with the European Economic Recovery Plan (EERP), amounting to 2,25 % of GDP. According to the programme, fiscal policy is planned to turn restrictive in 2010 and the outer years of the programme, in line with the exit strategy advocated by the Council, and with a view to correcting the excessive deficit by 2013 and returning to a sustainable public finances position. |
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(5)

The programme estimates the general government deficit in 2009 at 11,4 % of GDP. The significant deterioration from a deficit of 4,1 % of GDP in 2008 reflects to a large extent the impact of the crisis on government finances, including the working of automatic stabilisers, but was also brought about by stimulus measures, in line with the European Economic Recovery Plan (EERP), amounting to 2,25 % of GDP. According to the programme, fiscal policy is planned to turn restrictive in 2010 and the outer years of the programme, in line with the exit strategy advocated by the Council, and with a view to correcting the excessive deficit by 2013 and returning to a sustainable public finances position.

| (6) | According to the programme, the target for the general government deficit in 2010 stands at 9,8 % of GDP, which is markedly higher than the deficit of 8,1 % of GDP projected in the 2010 budget. This deterioration by 1,7 pp of GDP reflects a base effect from 2009. The 2010 Budget Law includes a number of discretionary measures on both the revenue and expenditure side, and will mark the start of fiscal consolidation in Spain. Concerning revenue, the budget includes inter alia hikes in VAT rates as of July 2010, an increased progressivity of the saving tax system and a temporary reduction of taxes on SMEs that favours employment. It also reflects the additional impact of tax hikes on alcohol and tobacco introduced in mid-2009. On the expenditure side, the budget incorporates the partial extension of the investment package addressed to local governments, amounting to 0,5 % of GDP. This investment expenditure is expected to be more than compensated by savings in current expenditure amounting to 0,75 % of GDP. Furthermore, the budget reflects the withdrawal of a large number of temporary stimulus measures implemented in 2008, such as the reduction in the tax burden on earned income through a personal income tax credit. The combined impact of the withdrawal of the temporary stimulus measures and the new discretionary measures designed for 2010 is expected to yield an improvement of the fiscal balance of up to 1,75 pp of GDP in 2010, which would be in line with the Council Recommendation under Article 126(7) of 2 December 2009. In addition to the measures included in the 2010 Budget, consolidation is expected to be reinforced by the so-called Immediate Action Plan for 2010, which will result in a reduction of 0,5 % of GDP with respect to the planned expenditure in the 2010 Budget Law. The fiscal stance in 2010 as measured by the change in the structural balance, i.e. the cyclically adjusted balance net of one-off and other temporary measures, will be restrictive, with an improvement of 2 pps of GDP. |
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(6)

According to the programme, the target for the general government deficit in 2010 stands at 9,8 % of GDP, which is markedly higher than the deficit of 8,1 % of GDP projected in the 2010 budget. This deterioration by 1,7 pp of GDP reflects a base effect from 2009. The 2010 Budget Law includes a number of discretionary measures on both the revenue and expenditure side, and will mark the start of fiscal consolidation in Spain. Concerning revenue, the budget includes inter alia hikes in VAT rates as of July 2010, an increased progressivity of the saving tax system and a temporary reduction of taxes on SMEs that favours employment. It also reflects the additional impact of tax hikes on alcohol and tobacco introduced in mid-2009. On the expenditure side, the budget incorporates the partial extension of the investment package addressed to local governments, amounting to 0,5 % of GDP. This investment expenditure is expected to be more than compensated by savings in current expenditure amounting to 0,75 % of GDP. Furthermore, the budget reflects the withdrawal of a large number of temporary stimulus measures implemented in 2008, such as the reduction in the tax burden on earned income through a personal income tax credit. The combined impact of the withdrawal of the temporary stimulus measures and the new discretionary measures designed for 2010 is expected to yield an improvement of the fiscal balance of up to 1,75 pp of GDP in 2010, which would be in line with the Council Recommendation under Article 126(7) of 2 December 2009. In addition to the measures included in the 2010 Budget, consolidation is expected to be reinforced by the so-called Immediate Action Plan for 2010, which will result in a reduction of 0,5 % of GDP with respect to the planned expenditure in the 2010 Budget Law. The fiscal stance in 2010 as measured by the change in the structural balance, i.e. the cyclically adjusted balance net of one-off and other temporary measures, will be restrictive, with an improvement of 2 pps of GDP.

| (7) | The main goal of the medium-term budgetary strategy is to bring the deficit below the 3 % of GDP reference value by 2013, in line with the Council Recommendation under Article 126(7) of 2 December 2009.
  The update targets a deficit of 7,5 %, 5,3 % and 3 % of GDP for 2011, 2012 and 2013, respectively. Consolidation in the outer years is expected to be strongly supported by the so-called Austerity Plan 2011-2013 for the central Government approved on 29 January 2010 and to be fully detailed in the next months, and the Framework Agreements, which still need to be approved, which contain a range of new measures to reduce expenditure at the regional and local levels. The main proposals included in this package intend to (i) practically freeze the public sector hiring process, (ii) reduce permanently intermediate consumption, transfers and other expenditure by 1 percentage point of GDP, (iii) decrease gross fixed capital formation by 0,9 % of GDP, and (iv) cut subsidies by 0,5 % of GDP. According to the programme, the medium-term budgetary objective (MTO) remains a balanced position over the cycle. Given the most recent projections and debt level, the MTO reflects more than adequately the objectives of the Pact. However, the programme does not envisage achieving it within the programme period. |
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(7)

The main goal of the medium-term budgetary strategy is to bring the deficit below the 3 % of GDP reference value by 2013, in line with the Council Recommendation under Article 126(7) of 2 December 2009.

The update targets a deficit of 7,5 %, 5,3 % and 3 % of GDP for 2011, 2012 and 2013, respectively. Consolidation in the outer years is expected to be strongly supported by the so-called Austerity Plan 2011-2013 for the central Government approved on 29 January 2010 and to be fully detailed in the next months, and the Framework Agreements, which still need to be approved, which contain a range of new measures to reduce expenditure at the regional and local levels. The main proposals included in this package intend to (i) practically freeze the public sector hiring process, (ii) reduce permanently intermediate consumption, transfers and other expenditure by 1 percentage point of GDP, (iii) decrease gross fixed capital formation by 0,9 % of GDP, and (iv) cut subsidies by 0,5 % of GDP. According to the programme, the medium-term budgetary objective (MTO) remains a balanced position over the cycle. Given the most recent projections and debt level, the MTO reflects more than adequately the objectives of the Pact. However, the programme does not envisage achieving it within the programme period.

| (8) | The budgetary outcomes could turn out worse than projected in the programme over the programme period. These risks appear relatively minor in 2010, but they are more relevant for the year 2011 and beyond. While the macroeconomic projections included in the update are only slightly favourable in 2010, they are markedly favourable thereafter. Uncertainty also surrounds the anticipated consolidation measures, particularly after 2010, which are still at the proposal stage and need to be specified further, adopted and implemented. There is an additional risk stemming from the budgetary performance of the regional and local governments though the Framework Agreements are expected to reduce it. |
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(8)

The budgetary outcomes could turn out worse than projected in the programme over the programme period. These risks appear relatively minor in 2010, but they are more relevant for the year 2011 and beyond. While the macroeconomic projections included in the update are only slightly favourable in 2010, they are markedly favourable thereafter. Uncertainty also surrounds the anticipated consolidation measures, particularly after 2010, which are still at the proposal stage and need to be specified further, adopted and implemented. There is an additional risk stemming from the budgetary performance of the regional and local governments though the Framework Agreements are expected to reduce it.

| (9) | Government gross debt is estimated at 55,2 % of GDP in 2009, significantly up from 39,7 % in the year before. Apart from the sizeable increase in the deficit and the decline in GDP growth, a significant stock-flow adjustment reflecting primarily credit support contributed to the rise in the debt ratio.
  The debt ratio is projected to increase by a further 19 pps over the programme period, to breach the Treaty reference value in 2010 and to reach 74 % of GDP by 2013, mainly driven by continued high government deficits. The evolution of the debt ratio may be nonetheless less favourable than projected in the update, in view of the risks to the macroeconomic scenario and the budgetary targets, the need for restructuring of the financial sector, and, to a lesser extent, the uncertainty about the impact of the guarantees granted in the context of the financial support package. However, the increase in debt linked to the measures taken in support of the financial sector could be reversed if the support scheme and the financial operations linked to it are successful. |
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(9)

Government gross debt is estimated at 55,2 % of GDP in 2009, significantly up from 39,7 % in the year before. Apart from the sizeable increase in the deficit and the decline in GDP growth, a significant stock-flow adjustment reflecting primarily credit support contributed to the rise in the debt ratio.

The debt ratio is projected to increase by a further 19 pps over the programme period, to breach the Treaty reference value in 2010 and to reach 74 % of GDP by 2013, mainly driven by continued high government deficits. The evolution of the debt ratio may be nonetheless less favourable than projected in the update, in view of the risks to the macroeconomic scenario and the budgetary targets, the need for restructuring of the financial sector, and, to a lesser extent, the uncertainty about the impact of the guarantees granted in the context of the financial support package. However, the increase in debt linked to the measures taken in support of the financial sector could be reversed if the support scheme and the financial operations linked to it are successful.

| (10) | Medium-term debt projections that assume GDP growth rates to gradually recover to the values projected before the crisis, tax ratios to return to pre-crisis levels and that include the projected increase in age-related expenditures show that the budgetary strategy envisaged in the programme, taken at face value and with no further policy change, would stabilise the debt-to-GDP ratio by 2020. |
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(10)

Medium-term debt projections that assume GDP growth rates to gradually recover to the values projected before the crisis, tax ratios to return to pre-crisis levels and that include the projected increase in age-related expenditures show that the budgetary strategy envisaged in the programme, taken at face value and with no further policy change, would stabilise the debt-to-GDP ratio by 2020.

| (11) | The long-term budgetary impact of ageing is clearly higher than the EU average, mainly as a result of a very high increase in pension expenditure as a share of GDP over the coming decades. The budgetary position in 2009, as estimated in the programme, which is significantly worse than the starting position of the previous programme, compounds the budgetary impact of population ageing on the sustainability gap. It is noted that assets have been accumulated in the Pension Reserve Fund in order to pre-fund part of future pension expenditure. Achieving primary surpluses in the medium term together with structural reforms would contribute to reducing the risks to the sustainability of public finances which were assessed in the Commission 2009 Sustainability Report (3) as high.
  According to the programme, on 29 January 2010 the Government proposed to the Toledo Pact a pension reform with, among others, the following elements: (i) the steady increase in the retirement age to 67 and the possibility of linking other parameters of the current system to this extension of the working life; (ii) strengthening the linkage between contribution and benefit (including the possibility of establishing notional accounts in a part of the system); (iii) a more flexible relationship between supplementary voluntary pension schemes and the public social security system; and (iv) a sufficient and more efficient policy of family assistance. |
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(11)

The long-term budgetary impact of ageing is clearly higher than the EU average, mainly as a result of a very high increase in pension expenditure as a share of GDP over the coming decades. The budgetary position in 2009, as estimated in the programme, which is significantly worse than the starting position of the previous programme, compounds the budgetary impact of population ageing on the sustainability gap. It is noted that assets have been accumulated in the Pension Reserve Fund in order to pre-fund part of future pension expenditure. Achieving primary surpluses in the medium term together with structural reforms would contribute to reducing the risks to the sustainability of public finances which were assessed in the Commission 2009 Sustainability Report (3) as high.

According to the programme, on 29 January 2010 the Government proposed to the Toledo Pact a pension reform with, among others, the following elements: (i) the steady increase in the retirement age to 67 and the possibility of linking other parameters of the current system to this extension of the working life; (ii) strengthening the linkage between contribution and benefit (including the possibility of establishing notional accounts in a part of the system); (iii) a more flexible relationship between supplementary voluntary pension schemes and the public social security system; and (iv) a sufficient and more efficient policy of family assistance.

| (12) | Although the medium-term budgetary framework has been instrumental in promoting multiannual fiscal planning and shows an overall good track record, the latter has worsened since 2008. The existing domestic budgetary framework had been strengthened with the reform of the Budgetary Stability Act in 2007, which introduced the principle of budgetary stability over the cycle. This allowed budgetary objectives to be established on the basis of the cyclical situation. In 2009 the margin of flexibility of this legislation was pushed to the limits, as exceptionally regional and local administrations were allowed to present higher deficits than initially foreseen within the budgetary framework. However, the approval of the Framework Agreements for the Sustainability of Public Finances with the regions and municipalities will, when fully implemented, set up the instrument to adopt and monitor their expenditure restructuring plans with similar content to that of the Central Government. |
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(12)

Although the medium-term budgetary framework has been instrumental in promoting multiannual fiscal planning and shows an overall good track record, the latter has worsened since 2008. The existing domestic budgetary framework had been strengthened with the reform of the Budgetary Stability Act in 2007, which introduced the principle of budgetary stability over the cycle. This allowed budgetary objectives to be established on the basis of the cyclical situation. In 2009 the margin of flexibility of this legislation was pushed to the limits, as exceptionally regional and local administrations were allowed to present higher deficits than initially foreseen within the budgetary framework. However, the approval of the Framework Agreements for the Sustainability of Public Finances with the regions and municipalities will, when fully implemented, set up the instrument to adopt and monitor their expenditure restructuring plans with similar content to that of the Central Government.

| (13) | The programme highlights the importance of the quality of public finances as a key element of the exit strategy in Spain. In this regard, the programme outlines some reforms aiming at improving the cost efficiency and the effectiveness of government expenditure as well as changing structural features of tax system. On the revenue side, these includes changes to the structural features of the Spanish tax system such as the withdrawal of reductions in the tax burden on earned income, an increased progressivity of saving tax system and an increase on VAT rates. On the expenditure side, priority is being given to productive expenditure, in particular education and R&D, along with the need to rein in intermediate public consumption reflected by a fall by 4,3 pps of GDP in the period 2011-2013. |
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(13)

The programme highlights the importance of the quality of public finances as a key element of the exit strategy in Spain. In this regard, the programme outlines some reforms aiming at improving the cost efficiency and the effectiveness of government expenditure as well as changing structural features of tax system. On the revenue side, these includes changes to the structural features of the Spanish tax system such as the withdrawal of reductions in the tax burden on earned income, an increased progressivity of saving tax system and an increase on VAT rates. On the expenditure side, priority is being given to productive expenditure, in particular education and R&D, along with the need to rein in intermediate public consumption reflected by a fall by 4,3 pps of GDP in the period 2011-2013.

| (14) | Overall, in 2010, the budgetary strategy set out in the programme is broadly consistent with the Council Recommendation under Article 126(7) of 2 December 2009. However, from 2011 on, taking into account risks, the budgetary strategy may not be fully consistent with the Council Recommendation under Article 126(7). Although the budgetary strategy to bring the deficit below 3 % of GDP is, taken at face value, in line with the recommendations, taking into account the above mentioned risks, the achievement of the correction of the excessive deficit by the deadline is not yet ensured and the average fiscal effort could fall short of the recommended minimum of 1,5 % of GDP per year for the whole period. In particular, the budgetary strategy is subject to downside risks due to the favourable macroeconomic scenario after 2010, which may imply a lower contribution of economic growth to fiscal consolidation than envisaged in the programme. Moreover, the post-2010 adjustment path needs to be spelled out in greater detail in terms of the concrete measures to be adopted. The budgetary strategy may also not be sufficient to bring the debt ratio back on a downward path. To address these risks, the strategy needs to be backed up by fully specified measures after 2010 and the plans for the outer years of the programme sufficiently strengthened This would also be appropriate in view of the projected rapid rise in debt ratio and in age-related spending as well as Spain's entrenched adjustment challenges. |
| --- | --- |

(14)

Overall, in 2010, the budgetary strategy set out in the programme is broadly consistent with the Council Recommendation under Article 126(7) of 2 December 2009. However, from 2011 on, taking into account risks, the budgetary strategy may not be fully consistent with the Council Recommendation under Article 126(7). Although the budgetary strategy to bring the deficit below 3 % of GDP is, taken at face value, in line with the recommendations, taking into account the above mentioned risks, the achievement of the correction of the excessive deficit by the deadline is not yet ensured and the average fiscal effort could fall short of the recommended minimum of 1,5 % of GDP per year for the whole period. In particular, the budgetary strategy is subject to downside risks due to the favourable macroeconomic scenario after 2010, which may imply a lower contribution of economic growth to fiscal consolidation than envisaged in the programme. Moreover, the post-2010 adjustment path needs to be spelled out in greater detail in terms of the concrete measures to be adopted. The budgetary strategy may also not be sufficient to bring the debt ratio back on a downward path. To address these risks, the strategy needs to be backed up by fully specified measures after 2010 and the plans for the outer years of the programme sufficiently strengthened This would also be appropriate in view of the projected rapid rise in debt ratio and in age-related spending as well as Spain's entrenched adjustment challenges.

| (15) | As regards the data requirements specified in the code of conduct for stability and convergence programmes, the programme has some gaps in the required and optional data (4). In its recommendations under Article 126(7) of 2 December 2009 with a view to bring the excessive deficit situation to an end, the Council also invited Spain to report on progress made in the implementation of the Council’s recommendations in a separate chapter in the updates of the stability programmes (5). |
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(15)

As regards the data requirements specified in the code of conduct for stability and convergence programmes, the programme has some gaps in the required and optional data (4). In its recommendations under Article 126(7) of 2 December 2009 with a view to bring the excessive deficit situation to an end, the Council also invited Spain to report on progress made in the implementation of the Council’s recommendations in a separate chapter in the updates of the stability programmes (5).

The overall conclusion is that the current crisis is severely impacting on the Spanish public finances, with a very high deficit estimated for 2009 and a rapidly rising government debt ratio. The stability programme update aims at sizeable continued fiscal consolidation from 2010 on with a view to reducing the government deficit to 3 % of GDP by 2013. Fiscal consolidation is essential, as mounting fiscal deficits and debt might damage sustained economic growth in the medium term. In addition, improving long-term fiscal sustainability should be a priority also in the light of the projected high rise in age-related public expenditure. Yet achieving the ambitious consolidation path may require additional efforts, notably in the light of the markedly favourable macroeconomic assumptions and the subsequent risk of a lower-than-assumed contribution of economic growth to fiscal consolidation, and the revenue performance in the outer years of the programme that might be difficult to attain. At the same time, the adjustment path is not fully backed up with concrete measures for the years beyond 2010. A functioning budgetary framework, including the regulation of the relations between the different levels of the general government sector, is an essential instrument to support the achievement of the ambitious consolidation plans against a setting of high fiscal decentralisation. In addition, further fostering the quality of public finances is important also with a view to underpinning a smooth adjustment of the economy in the light of the need to continue the adjustment of the existing macroeconomic imbalances, in particular the external imbalance, notably by lifting potential GDP, fostering employment creation and boosting productivity and competitiveness.

In view of the above assessment and also in the light of the Recommendation under Article 126(7) TFEU of 2 December 2009, Spain is invited to:

| (i) | implement with rigour the ambitious fiscal plans envisaged in the programme so as to correct the excessive deficit by 2013, backing it up with concrete measures in the years beyond 2010, and stand ready to adopt further consolidation measures in case risks related to the fact that the macroeconomic scenario of the programme is more favourable than the scenario underpinning the Article 126(7) Recommendation materialise; seize as prescribed in the EDP recommendation any further opportunity beyond the fiscal efforts, including from better economic conditions, to accelerate the reduction of the gross debt ratio towards the 60 % of GDP reference value; |
| --- | --- |

(i)

implement with rigour the ambitious fiscal plans envisaged in the programme so as to correct the excessive deficit by 2013, backing it up with concrete measures in the years beyond 2010, and stand ready to adopt further consolidation measures in case risks related to the fact that the macroeconomic scenario of the programme is more favourable than the scenario underpinning the Article 126(7) Recommendation materialise; seize as prescribed in the EDP recommendation any further opportunity beyond the fiscal efforts, including from better economic conditions, to accelerate the reduction of the gross debt ratio towards the 60 % of GDP reference value;

| (ii) | in view of the projected increase in age-related expenditure and the rapid rise of the government debt ratio, improve the long-term sustainability of public finances also by implementing reforms to the old-age pension scheme as proposed by the Government; |
| --- | --- |

(ii)

in view of the projected increase in age-related expenditure and the rapid rise of the government debt ratio, improve the long-term sustainability of public finances also by implementing reforms to the old-age pension scheme as proposed by the Government;

| (iii) | ensure that the budgetary framework effectively supports the achievement of the outlined medium-term fiscal plans at all levels of the general government sector, and closely monitor adherence to the budgetary targets throughout the year; |
| --- | --- |

(iii)

ensure that the budgetary framework effectively supports the achievement of the outlined medium-term fiscal plans at all levels of the general government sector, and closely monitor adherence to the budgetary targets throughout the year;

| (iv) | ensure that fiscal consolidation measures are also geared towards continuing the improvement of the quality of the public finances in the light of the need for further adjustment of existing macroeconomic imbalances. |
| --- | --- |

(iv)

ensure that fiscal consolidation measures are also geared towards continuing the improvement of the quality of the public finances in the light of the need for further adjustment of existing macroeconomic imbalances.

Spain is also invited to improve compliance with the data requirements of the code of conduct.

Comparison of key macroeconomic and budgetary projections

| | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 |
| --- | --- | --- | --- | --- | --- | --- |
| Real GDP
  (% change) | SP Feb 2010 | 0,9 | –3,6 | –0,3 | 1,8 | 2,9 | 3,1 |
| COM Nov 2009 | 0,9 | –3,7 | –0,8 | 1,0 | n.a. | n.a. |
| SP Jan 2009 | 1,2 | –1,6 | 1,2 | 2,6 | n.a. | n.a. |
| HICP inflation
  (%) | SP Feb 2010 | n.a. | n.a. | n.a. | n.a. | n.a. | n.a. |
| COM Nov 2009 | 4,1 | –0,4 | 0,8 | 2,0 | n.a. | n.a. |
| SP Jan 2009 | n.a. | n.a. | n.a. | n.a. | n.a. | n.a. |
| Output gap (6)

  (% of potential GDP) | SP Feb 2010 | 0,6 | –3,5 | –4,4 | –3,2 | –1,6 | –0,2 |
| COM Nov 2009 | 0,8 | –2,8 | –3,6 | –2,6 | n.a. | n.a. |
| SP Jan 2009 | 0,8 | –2,3 | –3,4 | n.a. | n.a. | n.a. |
| Net lending/borrowing vis-à-vis the rest of the world
  (% of GDP) | SP Feb 2010 | –9,1 | –4,9 | –4,2 | –3,8 | –3,6 | –3,5 |
| COM Nov 2009 | –9,1 | –4,5 | –3,7 | –3,3 | n.a. | n.a. |
| SP Jan 2009 | –9,2 | –6,6 | –5,8 | –5,4 | n.a. | n.a. |
| General government revenue
  (% of GDP) | SP Feb 2010 | 37,0 | 34,6 | 35,7 | 36,7 | 37,5 | 38,3 |
| COM Nov 2009 | 37,0 | 34,0 | 35,6 | 36,0 | n.a. | n.a. |
| SP Jan 2009 | 37,0 | 37,5 | 38,3 | 38,7 | n.a. | n.a. |
| General government expenditure
  (% of GDP) | SP Feb 2010 | 41,1 | 46,1 | 45,5 | 44,2 | 42,8 | 41,3 |
| COM Nov 2009 | 41,1 | 45,2 | 45,6 | 45,3 | n.a. | n.a. |
| SP Jan 2009 | 40,4 | 43,3 | 43,1 | 42,6 | n.a. | n.a. |
| General government balance
  (% of GDP) | SP Feb 2010 | –4,1 | –11,4 | –9,8 | –7,5 | –5,3 | –3,0 |
| COM Nov 2009 | –4,1 | –11,2 | –10,1 | –9,3 | n.a. | n.a. |
| SP Jan 2009 | –3,4 | –6,2 | –5,7 | n.a. | n.a. | n.a. |
| Primary balance
  (% of GDP) | SP Feb 2010 | –2,5 | –9,6 | –7,7 | –4,9 | –2,3 | 0,1 |
| COM Nov 2009 | –2,5 | –9,4 | –7,6 | –6,3 | n.a. | n.a. |
| SP Jan 2009 | –1,9 | –4,1 | –2,9 | –1,9 | n.a. | n.a. |
| Cyclically adjusted balance (6)

  (% of GDP) | SP Feb 2010 | –4,3 | –9,9 | –7,9 | –6,1 | –4,6 | –2,9 |
| COM Nov 2009 | –4,4 | –10,0 | –8,5 | –8,1 | n.a. | n.a. |
| SP Jan 2009 | –3,7 | –5,2 | –4,2 | n.a. | n.a. | n.a. |
| Structural balance (7)

  (% of GDP) | SP Feb 2010 | –4,3 | –9,9 | –7,9 | –6,1 | –4,6 | –2,9 |
| COM Nov 2009 | –4,1 | –9,3 | –8,5 | –8,1 | n.a. | n.a. |
| SP Jan 2009 | –3,3 | –4,6 | –4,2 | n.a. | n.a. | n.a. |
| Government gross debt
  (% of GDP) | SP Feb 2010 | 39,7 | 55,2 | 65,9 | 71,9 | 74,3 | 74,1 |
| COM Nov 2009 | 39,7 | 54,3 | 66,3 | 74,0 | n.a. | n.a. |
| SP Jan 2009 | 39,5 | 47,3 | 51,6 | 53,7 | n.a. | n.a. |
| Stability programme (SP); Commission services’ autumn 2009 forecasts (COM); Commission services’ calculations. |

2008

2009

2010

2011

2012

2013

Real GDP

(% change)

SP Feb 2010

0,9

–3,6

–0,3

1,8

2,9

3,1

COM Nov 2009

0,9

–3,7

–0,8

1,0

n.a.

n.a.

SP Jan 2009

1,2

–1,6

1,2

2,6

n.a.

n.a.

HICP inflation

(%)

SP Feb 2010

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

COM Nov 2009

4,1

–0,4

0,8

2,0

n.a.

n.a.

SP Jan 2009

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

Output gap (6)

(% of potential GDP)

SP Feb 2010

0,6

–3,5

–4,4

–3,2

–1,6

–0,2

COM Nov 2009

0,8

–2,8

–3,6

–2,6

n.a.

n.a.

SP Jan 2009

0,8

–2,3

–3,4

n.a.

n.a.

n.a.

Net lending/borrowing vis-à-vis the rest of the world

(% of GDP)

SP Feb 2010

–9,1

–4,9

–4,2

–3,8

–3,6

–3,5

COM Nov 2009

–9,1

–4,5

–3,7

–3,3

n.a.

n.a.

SP Jan 2009

–9,2

–6,6

–5,8

–5,4

n.a.

n.a.

General government revenue

(% of GDP)

SP Feb 2010

37,0

34,6

35,7

36,7

37,5

38,3

COM Nov 2009

37,0

34,0

35,6

36,0

n.a.

n.a.

SP Jan 2009

37,0

37,5

38,3

38,7

n.a.

n.a.

General government expenditure

(% of GDP)

SP Feb 2010

41,1

46,1

45,5

44,2

42,8

41,3

COM Nov 2009

41,1

45,2

45,6

45,3

n.a.

n.a.

SP Jan 2009

40,4

43,3

43,1

42,6

n.a.

n.a.

General government balance

(% of GDP)

SP Feb 2010

–4,1

–11,4

–9,8

–7,5

–5,3

–3,0

COM Nov 2009

–4,1

–11,2

–10,1

–9,3

n.a.

n.a.

SP Jan 2009

–3,4

–6,2

–5,7

n.a.

n.a.

n.a.

Primary balance

(% of GDP)

SP Feb 2010

–2,5

–9,6

–7,7

–4,9

–2,3

0,1

COM Nov 2009

–2,5

–9,4

–7,6

–6,3

n.a.

n.a.

SP Jan 2009

–1,9

–4,1

–2,9

–1,9

n.a.

n.a.

Cyclically adjusted balance (6)

(% of GDP)

SP Feb 2010

–4,3

–9,9

–7,9

–6,1

–4,6

–2,9

COM Nov 2009

–4,4

–10,0

–8,5

–8,1

n.a.

n.a.

SP Jan 2009

–3,7

–5,2

–4,2

n.a.

n.a.

n.a.

Structural balance (7)

(% of GDP)

SP Feb 2010

–4,3

–9,9

–7,9

–6,1

–4,6

–2,9

COM Nov 2009

–4,1

–9,3

–8,5

–8,1

n.a.

n.a.

SP Jan 2009

–3,3

–4,6

–4,2

n.a.

n.a.

n.a.

Government gross debt

(% of GDP)

SP Feb 2010

39,7

55,2

65,9

71,9

74,3

74,1

COM Nov 2009

39,7

54,3

66,3

74,0

n.a.

n.a.

SP Jan 2009

39,5

47,3

51,6

53,7

n.a.

n.a.

Stability programme (SP); Commission services’ autumn 2009 forecasts (COM); Commission services’ calculations.

---

(1)  OJ L 209, 2.8.1997, p. 1. The documents referred to in this text can be found at the following website: http://ec.europa.eu/economy_finance/sgp/index_en.htm

(2)  The assessment notably takes into account the Commission services' autumn 2009 forecast, but also other information that has become available since then, such as the Commission services' Interim 2010 forecast.

(3)  In the Council conclusions from 10 November 2009 on sustainability of public finances ‘the Council calls on Member States to focus attention to sustainability-oriented strategies in their upcoming stability and convergence programmes’ and further ‘invites the Commission, together with the Economic Policy Committee and the Economic and Financial Committee, to further develop methodologies for assessing the long-term sustainability of public finances in time for the next Sustainability report’, which is foreseen in 2012.

(4)  In particular, the data on labour productivity, hours worked and one-off and other temporary measures are not provided.

(5)  Spain materially complied with this recommendation, although the reporting was not in a separate chapter but integrated in the chapter on the medium-term budgetary strategy.

(6)  Output gaps and cyclically adjusted balances from the programmes as recalculated by Commission services on the basis of the information in the programmes.

(7)  Cyclically adjusted balance excluding one-off and other temporary measures. One-off and other temporary measures are n.a. according to the most recent programme and – 0,3 % of GDP in 2008 and – 0,7 % of GDP in 2009 in the Commission services’ autumn 2009 forecast.

Source:

Stability programme (SP); Commission services’ autumn 2009 forecasts (COM); Commission services’ calculations.

---

| 4.6.2010 | EN | Official Journal of the European Union | C 146/7 |
| --- | --- | --- | --- |

4.6.2010

EN

Official Journal of the European Union

C 146/7

---

COUNCIL OPINION

on the updated convergence programme of Sweden, 2009-2012

2010/C 146/02

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union,

Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies (1), and in particular Article 9(3) thereof,

Having regard to the recommendation of the Commission,

After consulting the Economic and Financial Committee,

HAS DELIVERED THIS OPINION:

| (1) | On 26 April 2010 the Council examined the updated convergence programme of Sweden, which covers the period 2009 to 2012. |
| --- | --- |

(1)

On 26 April 2010 the Council examined the updated convergence programme of Sweden, which covers the period 2009 to 2012.

| (2) | After being severely hit by the recession at the end of 2008, the Swedish economy has stabilised, but with GDP growth being negative throughout 2009. Somewhat uncharacteristically at this stage of the cycle, the Swedish economy has been mainly driven by consumer demand while industrial production, investment activity and exports have merely bottomed out after previous deep falls. Household spending has been helped by supportive fiscal and monetary policies and a stabilisation of the situation in the financial markets. An improving labour market outlook, rising stock market indices and a resumption of the previous upward trend in house prices have also contributed to strengthening consumer confidence. As the economy slipped into recession, the Swedish currency weakened by almost 30 % on a trade-weighted basis in less than a year, but has since recovered about three quarters of its lost value. Its recent appreciation should contribute to dampen inflationary pressures, already subdued by significant slack in the economy. The recession and the fiscal policy response it triggered have swung the public sector balance from a surplus of 2,5 % of GDP in 2008 to a deficit of 0,8 % of GDP in 2009. In order to ensure a sustainable development of public finances, a key challenge will be to avoid that a potentially rather job-anaemic recovery leads to lasting negative effects on long-term unemployment and a permanent loss of labour supply. Ensuring that active labour market policies remain of high quality even as they expand in scope will be important in this regard. Another challenge for policy makers will be to carefully calibrate the withdrawal of the various stimulus measures so as to neither nip the recovery in the bud nor contribute to the build-up of potentially destabilising household-sector imbalances. |
| --- | --- |

(2)

After being severely hit by the recession at the end of 2008, the Swedish economy has stabilised, but with GDP growth being negative throughout 2009. Somewhat uncharacteristically at this stage of the cycle, the Swedish economy has been mainly driven by consumer demand while industrial production, investment activity and exports have merely bottomed out after previous deep falls. Household spending has been helped by supportive fiscal and monetary policies and a stabilisation of the situation in the financial markets. An improving labour market outlook, rising stock market indices and a resumption of the previous upward trend in house prices have also contributed to strengthening consumer confidence. As the economy slipped into recession, the Swedish currency weakened by almost 30 % on a trade-weighted basis in less than a year, but has since recovered about three quarters of its lost value. Its recent appreciation should contribute to dampen inflationary pressures, already subdued by significant slack in the economy. The recession and the fiscal policy response it triggered have swung the public sector balance from a surplus of 2,5 % of GDP in 2008 to a deficit of 0,8 % of GDP in 2009. In order to ensure a sustainable development of public finances, a key challenge will be to avoid that a potentially rather job-anaemic recovery leads to lasting negative effects on long-term unemployment and a permanent loss of labour supply. Ensuring that active labour market policies remain of high quality even as they expand in scope will be important in this regard. Another challenge for policy makers will be to carefully calibrate the withdrawal of the various stimulus measures so as to neither nip the recovery in the bud nor contribute to the build-up of potentially destabilising household-sector imbalances.

| (3) | Although much of the observed decline in actual GDP in the context of the crisis is cyclical, the level of potential output has also been negatively affected. In addition, the crisis may also affect potential growth in the medium term through lower investment, constraints in credit availability and increasing structural unemployment. Moreover, the impact of the economic crisis compounds the negative effects of demographic ageing on potential output and the sustainability of public finances. Against this background it will be essential to accelerate the pace of structural reforms with the aim of supporting potential growth. In particular, for Sweden it is important to undertake reforms in the areas of competition and labour market participation. |
| --- | --- |

(3)

Although much of the observed decline in actual GDP in the context of the crisis is cyclical, the level of potential output has also been negatively affected. In addition, the crisis may also affect potential growth in the medium term through lower investment, constraints in credit availability and increasing structural unemployment. Moreover, the impact of the economic crisis compounds the negative effects of demographic ageing on potential output and the sustainability of public finances. Against this background it will be essential to accelerate the pace of structural reforms with the aim of supporting potential growth. In particular, for Sweden it is important to undertake reforms in the areas of competition and labour market participation.

| (4) | The macroeconomic scenario, which is based on the 2010 Budget Bill presented to Parliament in September 2009, envisages that real GDP growth will pick up from – 5,2 % in 2009 to 0,6 % in 2010 and to average 3,5 % over the rest of the programme period. Assessed against currently available information, this scenario appears to be based on cautious growth assumptions in 2010 and markedly favourable ones thereafter, given that the projected growth rates are substantially higher than the estimated medium-term growth potential. Against this background, the programme’s projections for inflation appear somewhat on the low side, though this may reflect the expected strengthening of the Swedish currency. |
| --- | --- |

(4)

The macroeconomic scenario, which is based on the 2010 Budget Bill presented to Parliament in September 2009, envisages that real GDP growth will pick up from – 5,2 % in 2009 to 0,6 % in 2010 and to average 3,5 % over the rest of the programme period. Assessed against currently available information, this scenario appears to be based on cautious growth assumptions in 2010 and markedly favourable ones thereafter, given that the projected growth rates are substantially higher than the estimated medium-term growth potential. Against this background, the programme’s projections for inflation appear somewhat on the low side, though this may reflect the expected strengthening of the Swedish currency.

| (5) | The programme estimates the general government deficit in 2009 to be 2,2 % of GDP. The significant deterioration from a surplus of 2,5 % of GDP in 2008 reflects the impact of the crisis through the effect of both automatic stabilisers and discretionary stimulus measures of about 1,5 % (more than 2,5 % including 2010) of GDP which the government adopted in line with the European Economic Recovery Plan (EERP). The deterioration was mainly due to falling tax revenue, as both the number of hours worked and average tax rates decreased, consumption fell and corporate profits and capital gains diminished. According to the programme, fiscal policy is planned to remain supportive in 2010. In view of Sweden's relatively favourable budgetary situation the continued fiscal expansion in 2010 is appropriate and in keeping with the EERP. No structural consolidation is foreseen in the outer years of the programme. |
| --- | --- |

(5)

The programme estimates the general government deficit in 2009 to be 2,2 % of GDP. The significant deterioration from a surplus of 2,5 % of GDP in 2008 reflects the impact of the crisis through the effect of both automatic stabilisers and discretionary stimulus measures of about 1,5 % (more than 2,5 % including 2010) of GDP which the government adopted in line with the European Economic Recovery Plan (EERP). The deterioration was mainly due to falling tax revenue, as both the number of hours worked and average tax rates decreased, consumption fell and corporate profits and capital gains diminished. According to the programme, fiscal policy is planned to remain supportive in 2010. In view of Sweden's relatively favourable budgetary situation the continued fiscal expansion in 2010 is appropriate and in keeping with the EERP. No structural consolidation is foreseen in the outer years of the programme.

| (6) | In 2010 the updated programme foresees the general government deficit to increase to 3,4 % of GDP (2), partly as a result of an additional stimulus package amounting to about 1 % of GDP. The main discretionary measures on the revenue side consist of a fourth step in the so-called in-work tax credit scheme, with an estimated impact on the government balance of 0,3 % of GDP. A reduction in the taxes on pensions adds a further 0,1 % of GDP to the stimulus. On the expenditure side, measures include additional state transfers to the municipalities of about 0,3 % of GDP and additional resources to crime control and the judicial system, education and training activities and measures to support the growth of small enterprises amounting to about 0,1 % of GDP each. The planned fiscal stance as measured by the change in the structural balance, the cyclically adjusted balance (recalculated according to the commonly agreed methodology) net of one-off and other temporary measures, is expansionary, with the structural deficit widening by 1,6 percentage points. The difference compared to the size of the fiscal package of 1 % of GDP is mainly explained by lower tax elasticities. |
| --- | --- |

(6)

In 2010 the updated programme foresees the general government deficit to increase to 3,4 % of GDP (2), partly as a result of an additional stimulus package amounting to about 1 % of GDP. The main discretionary measures on the revenue side consist of a fourth step in the so-called in-work tax credit scheme, with an estimated impact on the government balance of 0,3 % of GDP. A reduction in the taxes on pensions adds a further 0,1 % of GDP to the stimulus. On the expenditure side, measures include additional state transfers to the municipalities of about 0,3 % of GDP and additional resources to crime control and the judicial system, education and training activities and measures to support the growth of small enterprises amounting to about 0,1 % of GDP each. The planned fiscal stance as measured by the change in the structural balance, the cyclically adjusted balance (recalculated according to the commonly agreed methodology) net of one-off and other temporary measures, is expansionary, with the structural deficit widening by 1,6 percentage points. The difference compared to the size of the fiscal package of 1 % of GDP is mainly explained by lower tax elasticities.

| (7) | The main goal of the budgetary strategy is to bring the general government deficit back below the 3 % of GDP reference value (after reaching 3,4 % of GDP in 2010) and to keep it on a firm downward trend. The budgetary projections are based on a no-policy change assumption for the period after 2010 and foresee the headline general government deficit to gradually narrow from 3,4 % of GDP in 2010 to 2,1 % of GDP in 2011 and 1,1 % of GDP in 2012. The primary balance is expected to have a similar profile, going from a deficit of 2,2 % of GDP in 2010 to a deficit of 0,8 % in 2011, before swinging into a surplus of 0,4 % of GDP in 2012. This is a fairly significant improvement, in particular since it does not include any consolidation measures and the number of hours worked — an important tax base for income tax — does not rebound strongly in 2011-2012. The structural balance calculated according to the commonly agreed methodology, on the other hand, is expected to deteriorate, with the deficit widening from 1,3 % of GDP in 2010 to 1,5 % of GDP in 2011 and 2,1 % of GDP in 2012.
  The structural balance may, however, be underestimated, as there are lags in the cyclical evolution of the general government balance that are not fully captured in the cyclical adjustment. The MTO of Sweden is to achieve a surplus of 1 % of GDP over the cycle. Given the most recent projections and debt level, the MTO more than adequately reflects the objectives of the Pact. However, the updated convergence programme does not envisage achieving the medium-term budgetary objective within the programme period. |
| --- | --- |

(7)

The main goal of the budgetary strategy is to bring the general government deficit back below the 3 % of GDP reference value (after reaching 3,4 % of GDP in 2010) and to keep it on a firm downward trend. The budgetary projections are based on a no-policy change assumption for the period after 2010 and foresee the headline general government deficit to gradually narrow from 3,4 % of GDP in 2010 to 2,1 % of GDP in 2011 and 1,1 % of GDP in 2012. The primary balance is expected to have a similar profile, going from a deficit of 2,2 % of GDP in 2010 to a deficit of 0,8 % in 2011, before swinging into a surplus of 0,4 % of GDP in 2012. This is a fairly significant improvement, in particular since it does not include any consolidation measures and the number of hours worked — an important tax base for income tax — does not rebound strongly in 2011-2012. The structural balance calculated according to the commonly agreed methodology, on the other hand, is expected to deteriorate, with the deficit widening from 1,3 % of GDP in 2010 to 1,5 % of GDP in 2011 and 2,1 % of GDP in 2012.

The structural balance may, however, be underestimated, as there are lags in the cyclical evolution of the general government balance that are not fully captured in the cyclical adjustment. The MTO of Sweden is to achieve a surplus of 1 % of GDP over the cycle. Given the most recent projections and debt level, the MTO more than adequately reflects the objectives of the Pact. However, the updated convergence programme does not envisage achieving the medium-term budgetary objective within the programme period.

| (8) | The budgetary outcome is likely to turn out better than projected in the programme in 2010, but could be worse than projected thereafter. The reference scenario in the updated programme dates from the 2010 Budget Bill published in September 2009 and does not take into account the subsequent improvement in the economic outlook for 2009-2010 (3). Preliminary fiscal outcomes in 2009 also indicate considerably better figures than foreseen, notably with higher-than-expected receipts from VAT. The 2009 deficit amounts to only 0,8 % of GDP according to recently published National Accounts, compared with a forecast of 2,2 % of GDP in the updated programme. This could well spill over into 2010. For the years 2011-2012, the reference scenario foresees very strong GDP growth, based on buoyant domestic demand. Stimulus withdrawal, in particular a normalisation of interest rates, could, however, dampen consumer confidence, in particular in view of high household indebtedness. This development could be exacerbated, were the current house price inflation to slow down. While the situation in the financial sector has clearly improved, credit losses in some of the big banks are still running high and lending margins are being squeezed. Given the importance of the banking system to the functioning of the economy, possible government interventions in case of a confidence crisis could also have a negative impact on the budget, although some of the cost of government support to the financial sector could also be recouped in the future, 2010 being an election year, with parliamentary elections to be held in mid-September, risks stemming from the electoral cycle exist, but are not deemed to be particularly large. |
| --- | --- |

(8)

The budgetary outcome is likely to turn out better than projected in the programme in 2010, but could be worse than projected thereafter. The reference scenario in the updated programme dates from the 2010 Budget Bill published in September 2009 and does not take into account the subsequent improvement in the economic outlook for 2009-2010 (3). Preliminary fiscal outcomes in 2009 also indicate considerably better figures than foreseen, notably with higher-than-expected receipts from VAT. The 2009 deficit amounts to only 0,8 % of GDP according to recently published National Accounts, compared with a forecast of 2,2 % of GDP in the updated programme. This could well spill over into 2010. For the years 2011-2012, the reference scenario foresees very strong GDP growth, based on buoyant domestic demand. Stimulus withdrawal, in particular a normalisation of interest rates, could, however, dampen consumer confidence, in particular in view of high household indebtedness. This development could be exacerbated, were the current house price inflation to slow down. While the situation in the financial sector has clearly improved, credit losses in some of the big banks are still running high and lending margins are being squeezed. Given the importance of the banking system to the functioning of the economy, possible government interventions in case of a confidence crisis could also have a negative impact on the budget, although some of the cost of government support to the financial sector could also be recouped in the future, 2010 being an election year, with parliamentary elections to be held in mid-September, risks stemming from the electoral cycle exist, but are not deemed to be particularly large.

| (9) | Government gross debt is estimated at 42,8 % of GDP in 2009, up from 38,0 % of GDP the year before. Apart from the increase in the deficit and the decline in GDP growth, a significant stock-flow adjustment reflecting primarily a loan to the central bank contributed to the rise in the debt ratio. The debt ratio is projected to increase by a further 2,4 percentage points over the programme period to 45,2 % of GDP in 2012, mainly driven by continued government deficits. The risks to the projected evolution of the debt ratio appear to be broadly balanced, with some positive risks for 2010 and some downside risks thereafter. Gross debt remains well below the reference value and the net financial position is positive. |
| --- | --- |

(9)

Government gross debt is estimated at 42,8 % of GDP in 2009, up from 38,0 % of GDP the year before. Apart from the increase in the deficit and the decline in GDP growth, a significant stock-flow adjustment reflecting primarily a loan to the central bank contributed to the rise in the debt ratio. The debt ratio is projected to increase by a further 2,4 percentage points over the programme period to 45,2 % of GDP in 2012, mainly driven by continued government deficits. The risks to the projected evolution of the debt ratio appear to be broadly balanced, with some positive risks for 2010 and some downside risks thereafter. Gross debt remains well below the reference value and the net financial position is positive.

| (10) | Medium-term debt projections that assume GDP growth rates to gradually recover to the values projected before the crisis, tax ratios to return to pre-crisis levels and include the projected increase in age-related expenditures show that the budgetary strategy envisaged in the programme, taken at face value and with no further policy change, would put the debt ratio on a declining path, reducing it to about 15 % of GDP by 2020. |
| --- | --- |

(10)

Medium-term debt projections that assume GDP growth rates to gradually recover to the values projected before the crisis, tax ratios to return to pre-crisis levels and include the projected increase in age-related expenditures show that the budgetary strategy envisaged in the programme, taken at face value and with no further policy change, would put the debt ratio on a declining path, reducing it to about 15 % of GDP by 2020.

| (11) | The long-term budgetary impact of ageing is clearly lower than the EU average and the large assets accumulated by the public pension schemes will help finance part of the increase in pension expenditure. The budgetary position in 2009, as estimated in the programme, contributes to the reduction of gross debt. Ensuring primary surpluses over the medium term and implementing appropriate structural reforms would contribute to limiting the risks to the sustainability of public finances which were assessed in the Commission 2009 Sustainability Report (4) as low. |
| --- | --- |

(11)

The long-term budgetary impact of ageing is clearly lower than the EU average and the large assets accumulated by the public pension schemes will help finance part of the increase in pension expenditure. The budgetary position in 2009, as estimated in the programme, contributes to the reduction of gross debt. Ensuring primary surpluses over the medium term and implementing appropriate structural reforms would contribute to limiting the risks to the sustainability of public finances which were assessed in the Commission 2009 Sustainability Report (4) as low.

| (12) | The Swedish budgetary framework can be considered as strong and has contributed to the significant debt reduction observed since its introduction. To increase transparency, the government has in recent years taken a number of steps to refine the framework and is committed to continue reviewing the performance of the framework to address remaining weaknesses. Notably, a Fiscal Council has been set up with the task of evaluating how well the government has implemented its fiscal policy objectives. This Council presented its second annual report in 2009. The government has recently also strengthened the rules regarding the expenditure ceiling and is considering ways to strengthen the status of the surplus target. Remaining weaknesses relate to the risk of the framework not being sufficiently able to prevent pro-cyclical policies in good times, in particular at local government level. This stems from the fact that the balanced-budget requirement does not allow local governments to use surpluses in good times to cover deficits in bad times. |
| --- | --- |

(12)

The Swedish budgetary framework can be considered as strong and has contributed to the significant debt reduction observed since its introduction. To increase transparency, the government has in recent years taken a number of steps to refine the framework and is committed to continue reviewing the performance of the framework to address remaining weaknesses. Notably, a Fiscal Council has been set up with the task of evaluating how well the government has implemented its fiscal policy objectives. This Council presented its second annual report in 2009. The government has recently also strengthened the rules regarding the expenditure ceiling and is considering ways to strengthen the status of the surplus target. Remaining weaknesses relate to the risk of the framework not being sufficiently able to prevent pro-cyclical policies in good times, in particular at local government level. This stems from the fact that the balanced-budget requirement does not allow local governments to use surpluses in good times to cover deficits in bad times.

| (13) | As achieving a high rate of employment is a prerequisite for achieving sustainable public finances, in particular in view of the ageing of the population, the government has taken a number of measures on both the supply and demand side to improve the incentives to work and reduce the cost of hiring, in particular for groups with a relatively low employment rate, such as young people and immigrants. Labour income taxes have been reduced, in the form of a so called in-work tax credit and a higher threshold for paying state tax. These tax cuts have been coupled with general and targeted reductions in social contributions to lower the cost of hiring. Reforms have also been undertaken with regard to the unemployment and sickness insurance systems, where both the level of benefits and the length of time a person can receive them have been scaled back. While the number of people receiving sickness insurance benefits has already fallen, the effects of the income tax reforms are mainly to be expected in the medium to long term. |
| --- | --- |

(13)

As achieving a high rate of employment is a prerequisite for achieving sustainable public finances, in particular in view of the ageing of the population, the government has taken a number of measures on both the supply and demand side to improve the incentives to work and reduce the cost of hiring, in particular for groups with a relatively low employment rate, such as young people and immigrants. Labour income taxes have been reduced, in the form of a so called in-work tax credit and a higher threshold for paying state tax. These tax cuts have been coupled with general and targeted reductions in social contributions to lower the cost of hiring. Reforms have also been undertaken with regard to the unemployment and sickness insurance systems, where both the level of benefits and the length of time a person can receive them have been scaled back. While the number of people receiving sickness insurance benefits has already fallen, the effects of the income tax reforms are mainly to be expected in the medium to long term.

| (14) | Overall, the chosen strategy to exploit the favourable starting point, with substantial fiscal surpluses, by implementing strongly supportive fiscal policies in 2009 and 2010 can be considered in line with the EERP. The much stronger-than-projected outcome in 2009 and the improvement in the macroeconomic outlook for 2010 improves the prospects that Sweden, as one of very few Member States, would be able to avoid breaching the 3 % of GDP reference value in this difficult juncture. Nevertheless, in structural terms no progress towards meeting the MTO is expected during the 2011-2012 period, during which growth assumptions are deemed favourable. Therefore, the budgetary strategy would gain from specifying concrete measures in the outer years of the programme period. |
| --- | --- |

(14)

Overall, the chosen strategy to exploit the favourable starting point, with substantial fiscal surpluses, by implementing strongly supportive fiscal policies in 2009 and 2010 can be considered in line with the EERP. The much stronger-than-projected outcome in 2009 and the improvement in the macroeconomic outlook for 2010 improves the prospects that Sweden, as one of very few Member States, would be able to avoid breaching the 3 % of GDP reference value in this difficult juncture. Nevertheless, in structural terms no progress towards meeting the MTO is expected during the 2011-2012 period, during which growth assumptions are deemed favourable. Therefore, the budgetary strategy would gain from specifying concrete measures in the outer years of the programme period.

| (15) | As regards the data requirements specified in the code of conduct for stability and convergence programmes, the programme has some gaps in the required and optional data (5). |
| --- | --- |

(15)

As regards the data requirements specified in the code of conduct for stability and convergence programmes, the programme has some gaps in the required and optional data (5).

The overall conclusion is that large surpluses in good times allowed fiscal policy to play an active role in the downturn, in line with the spirit of the Stability and Growth Pact, not only by boosting demand in the short term but also by strengthening the economy's long-term growth potential. The fiscal stance is appropriately continuing to be expansionary in 2010 in line with the EERP. Although partly outdated, the programme projects the deficit to widen to 3,4 % of GDP in 2010, from 2,2 % in 2009, due mainly to the additional stimulus measures taking effect in this year. Thereafter, the deficit ratio is projected to gradually narrow to 2,1 % of GDP in 2011 and 1,1 % in 2012. This improvement is due mainly to assumed strong economic growth, as the programme does not envisage any consolidation efforts in these years. Overall risks to the planned adjustment seem somewhat tilted to the upside, with considerable upside risks in 2010 being partly compensated by downside risks in 2011-2012. However, should budgetary outcomes fall short of the projected ones, the government would have to stand ready to adopt timely discretionary consolidation measures.

In view of the above assessment and given the need to ensure sustainable convergence, while recognising the exemplary performance of Swedish fiscal policy in line with the Stability and Growth Pact in recent years, Sweden is invited to:

| (i) | implement the 2010 fiscal policy as planned in line with the EERP, while aiming to avoid breaching of the 3 %-of-GDP reference value; |
| --- | --- |

(i)

implement the 2010 fiscal policy as planned in line with the EERP, while aiming to avoid breaching of the 3 %-of-GDP reference value;

| (ii) | ensure that the nominal budgetary adjustment projected in the programme is achieved, if necessary by timely adoption of consolidation measures to ensure that lower-than-expected growth does not derail the envisaged consolidation of government finances in the outer years of the programme, as well as to ensure progress towards the MTO, |
| --- | --- |

(ii)

ensure that the nominal budgetary adjustment projected in the programme is achieved, if necessary by timely adoption of consolidation measures to ensure that lower-than-expected growth does not derail the envisaged consolidation of government finances in the outer years of the programme, as well as to ensure progress towards the MTO,

Sweden is also invited to improve compliance with the data requirements of the code of conduct.

Comparison of key macroeconomic and budgetary projections

| | 2008 | 2009 | 2010 | 2011 | 2012 |
| --- | --- | --- | --- | --- | --- |
| Real GDP
  (% change) | CP Jan 2010 | –0,2 | –5,2 | 0,6 | 3,1 | 3,8 |
| COM Nov 2009 | –0,2 | –4,6 | 1,4 | 2,1 | n.a. |
| CP Dec 2008 | 1,5 | 1,3 | 3,1 | 3,5 | n.a. |
| HICP inflation
  (%) | CP Jan 2010 | 2,1 | 2,0 | 0,4 | 0,6 | 0,9 |
| COM Nov 2009 | 3,3 | 1,9 | 1,7 | 1,7 | n.a. |
| CP Dec 2008 | 3,6 | 1,5 | n.a. | n.a. | n.a. |
| Output gap (6)

  (% of potential GDP) | CP Jan 2010 | 1,7 | –4,1 | –3,6 | –1,3 | 1,5 |
| COM Nov 2009 (7) | 0,9 | –4,5 | –4,1 | –3,3 | n.a. |
| CP Dec 2008 | –0,5 | –1,6 | –1,0 | –0,2 | n.a. |
| Net lending/borrowing vis-à-vis the rest of the world
  (% of GDP) | CP Jan 2010 | 7,8 | 7,2 | 7,1 | 7,4 | 7,4 |
| COM Nov 2009 | 8,1 | 7,6 | 7,7 | 8,1 | n.a. |
| CP Dec 2008 | 8,2 | 8,2 | 8,3 | 8,1 | n.a. |
| General government revenue
  (% of GDP) | CP Jan 2010 | 55,6 | 54,9 | 54,6 | 54,3 | 53,9 |
| COM Nov 2009 | 55,6 | 53,8 | 52,3 | 52,0 | n.a. |
| CP Dec 2008 | 55,4 | 54,1 | 53,8 | 53,3 | n.a. |
| General government expenditure
  (% of GDP) | CP Jan 2010 | 53,1 | 57,1 | 58,0 | 56,3 | 54,9 |
| COM Nov 2009 | 53,1 | 55,9 | 55,6 | 54,6 | n.a. |
| CP Dec 2008 | 52,5 | 53,1 | 52,2 | 50,8 | n.a. |
| General government balance
  (% of GDP) | CP Jan 2010 | 2,5 | –2,2 | –3,4 | –2,1 | –1,1 |
| COM Nov 2009 | 2,5 | –2,1 | –3,3 | –2,7 | n.a. |
| CP Dec 2008 | 2,8 | 1,1 | 1,6 | 2,5 | n.a. |
| Primary balance
  (% of GDP) | CP Jan 2010 | 4,2 | –0,9 | –2,2 | –0,8 | 0,4 |
| COM Nov 2009 | 4,2 | –0,8 | –2,1 | –1,4 | n.a. |
| CP Dec 2008 | –4,7 | –2,6 | –3,0 | –3,8 | n.a. |
| Cyclically adjusted balance (6)

  (% of GDP) | CP Jan 2010 | 1,5 | 0,2 | –1,3 | –1,4 | –2,0 |
| COM Nov 2009 | 1,9 | 0,5 | –1,0 | –0,7 | n.a. |
| CP Dec 2008 | 3,1 | 2,0 | 2,2 | 2,6 | n.a. |
| Structural balance (8)

  (% of GDP) | CP Jan 2010 | 1,2 | 0,3 | –1,3 | –1,5 | –2,1 |
| COM Nov 2009 | 1,6 | 0,3 | –1,0 | –0,7 | n.a. |
| CP Dec 2008 | 2,8 | 1,9 | 2,1 | 2,5 | n.a. |
| Government gross debt
  (% of GDP) | CP Jan 2010 | 38,0 | 42,8 | 45,5 | 45,6 | 45,2 |
| COM Nov 2009 | 38,0 | 42,1 | 43,6 | 44,1 | n.a. |
| CP Dec 2008 | 35,5 | 32,2 | 28,3 | 23,8 | n.a. |
| Convergence programme (CP); Commission services’ autumn 2009 forecasts (COM); Commission services’ calculations. |

2008

2009

2010

2011

2012

Real GDP

(% change)

CP Jan 2010

–0,2

–5,2

0,6

3,1

3,8

COM Nov 2009

–0,2

–4,6

1,4

2,1

n.a.

CP Dec 2008

1,5

1,3

3,1

3,5

n.a.

HICP inflation

(%)

CP Jan 2010

2,1

2,0

0,4

0,6

0,9

COM Nov 2009

3,3

1,9

1,7

1,7

n.a.

CP Dec 2008

3,6

1,5

n.a.

n.a.

n.a.

Output gap (6)

(% of potential GDP)

CP Jan 2010

1,7

–4,1

–3,6

–1,3

1,5

COM Nov 2009 (7)

0,9

–4,5

–4,1

–3,3

n.a.

CP Dec 2008

–0,5

–1,6

–1,0

–0,2

n.a.

Net lending/borrowing vis-à-vis the rest of the world

(% of GDP)

CP Jan 2010

7,8

7,2

7,1

7,4

7,4

COM Nov 2009

8,1

7,6

7,7

8,1

n.a.

CP Dec 2008

8,2

8,2

8,3

8,1

n.a.

General government revenue

(% of GDP)

CP Jan 2010

55,6

54,9

54,6

54,3

53,9

COM Nov 2009

55,6

53,8

52,3

52,0

n.a.

CP Dec 2008

55,4

54,1

53,8

53,3

n.a.

General government expenditure

(% of GDP)

CP Jan 2010

53,1

57,1

58,0

56,3

54,9

COM Nov 2009

53,1

55,9

55,6

54,6

n.a.

CP Dec 2008

52,5

53,1

52,2

50,8

n.a.

General government balance

(% of GDP)

CP Jan 2010

2,5

–2,2

–3,4

–2,1

–1,1

COM Nov 2009

2,5

–2,1

–3,3

–2,7

n.a.

CP Dec 2008

2,8

1,1

1,6

2,5

n.a.

Primary balance

(% of GDP)

CP Jan 2010

4,2

–0,9

–2,2

–0,8

0,4

COM Nov 2009

4,2

–0,8

–2,1

–1,4

n.a.

CP Dec 2008

–4,7

–2,6

–3,0

–3,8

n.a.

Cyclically adjusted balance (6)

(% of GDP)

CP Jan 2010

1,5

0,2

–1,3

–1,4

–2,0

COM Nov 2009

1,9

0,5

–1,0

–0,7

n.a.

CP Dec 2008

3,1

2,0

2,2

2,6

n.a.

Structural balance (8)

(% of GDP)

CP Jan 2010

1,2

0,3

–1,3

–1,5

–2,1

COM Nov 2009

1,6

0,3

–1,0

–0,7

n.a.

CP Dec 2008

2,8

1,9

2,1

2,5

n.a.

Government gross debt

(% of GDP)

CP Jan 2010

38,0

42,8

45,5

45,6

45,2

COM Nov 2009

38,0

42,1

43,6

44,1

n.a.

CP Dec 2008

35,5

32,2

28,3

23,8

n.a.

Convergence programme (CP); Commission services’ autumn 2009 forecasts (COM); Commission services’ calculations.

---

(1)  OJ L 209, 2.8.1997, p. 1. The documents referred to in this text can be found at the following website: http://ec.europa.eu/economy_finance/sgp/index_en.htm

(2)  However, more recent data published by the Swedish authorities suggests that the budgetary outcome for 2010 may turn out markedly more favourable.

(3)  However, the programme refers to the government's November 2009 update of the forecast, which reflects part of the improvement in the outlook compared to the reference scenario, and two alternative growth profiles, which portray a worse and a more favourable macroeconomic projection, respectively. None of these projections are detailed enough to be considered as the reference scenario.

(4)  In the Council conclusions from 10 November 2009 on sustainability of public finances ‘the Council calls on Member States to focus attention to sustainability-oriented strategies in their upcoming stability and convergence programmes’ and further ‘invites the Commission, together with the Economic Policy Committee and the Economic and Financial Committee, to further develop methodologies for assessing the long-term sustainability of public finances in time for the next Sustainability report’, which is foreseen in 2012.

(5)  In particular, the data on net lending of the private sector, which have the effect of making the assessment objectively more difficult, are not provided.

(6)  Output gaps and cyclically adjusted balances according to the programmes as recalculated by Commission services on the basis of the information in the programmes.

(7)  Based on estimated potential growth of 2,0 %, 0,9 %, 0,9 % and 1,3 % respectively in the period 2008-2011.

(8)  Cyclically adjusted balance excluding one-off and other temporary measures. One-off and other temporary measures are 0,3 % of GDP in 2008 and 0,1 % in both 2011and 2012, all deficit-reducing, and 0,1 % of GDP in 2009, deficit increasing, according to the most recent programme and 0,3 % of GDP in 2008 and 0,2 % of GDP in 2009, all deficit-reducing, in the Commission services’ autumn 2009 forecast.

Source:

Convergence programme (CP); Commission services’ autumn 2009 forecasts (COM); Commission services’ calculations.

---

| 4.6.2010 | EN | Official Journal of the European Union | C 146/12 |
| --- | --- | --- | --- |

4.6.2010

EN

Official Journal of the European Union

C 146/12

---

COUNCIL OPINION

on the updated stability programme of the Netherlands, 2009-2012

2010/C 146/03

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union,

Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies (1), and in particular Article 5(3) thereof,

Having regard to the recommendation of the Commission,

After consulting the Economic and Financial Committee,

HAS DELIVERED THIS OPINION:

| (1) | On 26 April 2010 the Council examined the updated stability programme of the Netherlands, which covers the period 2009 to 2012. |
| --- | --- |

(1)

On 26 April 2010 the Council examined the updated stability programme of the Netherlands, which covers the period 2009 to 2012.

| (2) | In 2009, economic activity experienced a severe contraction of 4 %. The fall in world trade hit the Dutch economy relatively hard, resulting in a negative contribution of net exports to growth. Domestic demand also put a drag on growth throughout the year as private consumption decreased due to important negative wealth and confidence effects, and investment suffered from decreasing demand, lower profitability and tightening credit conditions. Government consumption was the only demand component supporting economic activity, mainly due to the 1 % of GDP stimulus package implemented in line with the EERP. For 2010, GDP growth is expected to be positive again, most likely driven by net exports on the back of the recovery in world trade. Private consumption is set to remain subdued, as real disposable income is negatively affected by lower wage growth and increasing unemployment and investment is expected to suffer from the low capacity utilisation rate, decreased profitability and still difficult credit conditions. The budgetary position eroded very quickly in 2009 from a surplus of 0,7 % of GDP in 2008 to a deficit of 4,9 % of GDP as a result of the recovery measures taken by the government in response to the economic crisis, the full working of the automatic stabilisers, and decreasing gas revenues. For 2010, a further deterioration is foreseen. The 2009 budget deficit in excess of the 3 % of GDP reference value triggered an excessive deficit procedure. In this context, the Council issued recommendations to the Netherlands in December 2009, setting 2013 as the deadline for correcting the excessive deficit. Bringing the deficit below 3 % of GDP by that date will be one of the main policy challenges for the Netherlands. Other challenges include addressing the long-term sustainability of public finances, the continued strengthening of confidence in the financial sector, and ensuring access to finance for the corporate sector. |
| --- | --- |

(2)

In 2009, economic activity experienced a severe contraction of 4 %. The fall in world trade hit the Dutch economy relatively hard, resulting in a negative contribution of net exports to growth. Domestic demand also put a drag on growth throughout the year as private consumption decreased due to important negative wealth and confidence effects, and investment suffered from decreasing demand, lower profitability and tightening credit conditions. Government consumption was the only demand component supporting economic activity, mainly due to the 1 % of GDP stimulus package implemented in line with the EERP. For 2010, GDP growth is expected to be positive again, most likely driven by net exports on the back of the recovery in world trade. Private consumption is set to remain subdued, as real disposable income is negatively affected by lower wage growth and increasing unemployment and investment is expected to suffer from the low capacity utilisation rate, decreased profitability and still difficult credit conditions. The budgetary position eroded very quickly in 2009 from a surplus of 0,7 % of GDP in 2008 to a deficit of 4,9 % of GDP as a result of the recovery measures taken by the government in response to the economic crisis, the full working of the automatic stabilisers, and decreasing gas revenues. For 2010, a further deterioration is foreseen. The 2009 budget deficit in excess of the 3 % of GDP reference value triggered an excessive deficit procedure. In this context, the Council issued recommendations to the Netherlands in December 2009, setting 2013 as the deadline for correcting the excessive deficit. Bringing the deficit below 3 % of GDP by that date will be one of the main policy challenges for the Netherlands. Other challenges include addressing the long-term sustainability of public finances, the continued strengthening of confidence in the financial sector, and ensuring access to finance for the corporate sector.

| (3) | Although much of the observed decline in actual GDP in the context of the crisis is cyclical, the level of potential output has also been negatively affected. In addition, the crisis may also affect potential growth in the medium term through lower investment, constraints in credit availability and increasing structural unemployment. Moreover, the impact of the economic crisis compounds the negative effects of demographic ageing on potential output and the sustainability of public finances. Against this background it will be essential to accelerate the pace of structural reforms with the aim of supporting potential growth. In particular, for the Netherlands it is important to undertake reforms in the area of the labour market, especially by developing further measures, including fostering labour market transitions to improve the participation of women, older workers and disadvantaged groups with a view to raising overall hours worked and in the area of R&D, by continuing to create favourable R&D incentives. |
| --- | --- |

(3)

Although much of the observed decline in actual GDP in the context of the crisis is cyclical, the level of potential output has also been negatively affected. In addition, the crisis may also affect potential growth in the medium term through lower investment, constraints in credit availability and increasing structural unemployment. Moreover, the impact of the economic crisis compounds the negative effects of demographic ageing on potential output and the sustainability of public finances. Against this background it will be essential to accelerate the pace of structural reforms with the aim of supporting potential growth. In particular, for the Netherlands it is important to undertake reforms in the area of the labour market, especially by developing further measures, including fostering labour market transitions to improve the participation of women, older workers and disadvantaged groups with a view to raising overall hours worked and in the area of R&D, by continuing to create favourable R&D incentives.

| (4) | The macroeconomic scenario underlying the programme is for 2010 based on projections of the Netherlands Bureau for Economic Policy Analysis (CPB) and envisages that after the 4 % contraction in 2009, real GDP will grow again by 1,5 % in 2010 before further recovering to an average rate of 2 % over the rest of the programme period. Assessed against currently available information (2), this scenario appears to be based on favourable growth assumptions for 2010 and 2011 and plausible assumptions for 2012. The programme’s projections for inflation appear realistic for 2010 and somewhat on the low side for 2011 and 2012. The assumption in the programme that the recovery of economic growth will be mainly driven by net exports is plausible, whereas the projected growth contributions from private consumption and investment seem to be favourable. With regard to the labour market, both employment growth and unemployment developments appear somewhat favourable over the programme period. |
| --- | --- |

(4)

The macroeconomic scenario underlying the programme is for 2010 based on projections of the Netherlands Bureau for Economic Policy Analysis (CPB) and envisages that after the 4 % contraction in 2009, real GDP will grow again by 1,5 % in 2010 before further recovering to an average rate of 2 % over the rest of the programme period. Assessed against currently available information (2), this scenario appears to be based on favourable growth assumptions for 2010 and 2011 and plausible assumptions for 2012. The programme’s projections for inflation appear realistic for 2010 and somewhat on the low side for 2011 and 2012. The assumption in the programme that the recovery of economic growth will be mainly driven by net exports is plausible, whereas the projected growth contributions from private consumption and investment seem to be favourable. With regard to the labour market, both employment growth and unemployment developments appear somewhat favourable over the programme period.

| (5) | According to the programme the general government deficit deteriorated strongly from a surplus of 0,7 % of GDP in 2008 to a deficit of 4,9 % of GDP in 2009, reflecting to a large extent the impact of the crisis on government finances, but was also brought about by stimulus measures amounting to 1 % of GDP which the government adopted in line with the European Economic Recovery Plan (EERP). Fiscal policy is planned to remain supportive in 2010 before turning restrictive in the outer years of the programme. In line with the exit strategy advocated by the Council, and with a view to correcting the excessive deficit by 2013 and returning to a sustainable public finance position, the expansionary fiscal stance in 2009 and 2010 needs to be followed by a significant fiscal tightening from 2011 on. |
| --- | --- |

(5)

According to the programme the general government deficit deteriorated strongly from a surplus of 0,7 % of GDP in 2008 to a deficit of 4,9 % of GDP in 2009, reflecting to a large extent the impact of the crisis on government finances, but was also brought about by stimulus measures amounting to 1 % of GDP which the government adopted in line with the European Economic Recovery Plan (EERP). Fiscal policy is planned to remain supportive in 2010 before turning restrictive in the outer years of the programme. In line with the exit strategy advocated by the Council, and with a view to correcting the excessive deficit by 2013 and returning to a sustainable public finance position, the expansionary fiscal stance in 2009 and 2010 needs to be followed by a significant fiscal tightening from 2011 on.

| (6) | The budgetary target for 2010 in the update of the programme is a deficit of 6,1 % of GDP. The programme foresees the revenue ratio to decrease by 0,1 % of GDP compared to 2009, whereas the expenditure ratio is expected to rise by 1,1 % of GDP. The programme's budgetary projection for 2010 is 0,2 % of GDP better compared to the 2010 budget target and is, taken at face value, in line with the Council recommendation under Article 126(7) of 2 December 2009. The more favourable macroeconomic prospects underlying the programme are only partly translated into the budgetary outcome, mainly due to the concentration of growth in the tax-poor export-oriented sector and a 0,1 % of GDP negative base effect from 2009. The 2010 structural balance, i.e. the cyclically adjusted balance net of one-off and other temporary measures recalculated according to the commonly agreed methodology, shows a deterioration from – 3,75 % of GDP in 2009 to – 4,75 % of GDP in 2010. The overall effect of discretionary measures in 2010 is negligible, as higher discretionary expenditure is matched by tax increases. The deterioration of the structural balance in 2010 that is nevertheless observed can partly be explained by higher interest expenditure and decreasing gas revenues but most importantly by various lagged effects, like increasing unemployment, which leads to higher expenditure and lower tax revenue than what would be suggested when using standard elasticities. |
| --- | --- |

(6)

The budgetary target for 2010 in the update of the programme is a deficit of 6,1 % of GDP. The programme foresees the revenue ratio to decrease by 0,1 % of GDP compared to 2009, whereas the expenditure ratio is expected to rise by 1,1 % of GDP. The programme's budgetary projection for 2010 is 0,2 % of GDP better compared to the 2010 budget target and is, taken at face value, in line with the Council recommendation under Article 126(7) of 2 December 2009. The more favourable macroeconomic prospects underlying the programme are only partly translated into the budgetary outcome, mainly due to the concentration of growth in the tax-poor export-oriented sector and a 0,1 % of GDP negative base effect from 2009. The 2010 structural balance, i.e. the cyclically adjusted balance net of one-off and other temporary measures recalculated according to the commonly agreed methodology, shows a deterioration from – 3,75 % of GDP in 2009 to – 4,75 % of GDP in 2010. The overall effect of discretionary measures in 2010 is negligible, as higher discretionary expenditure is matched by tax increases. The deterioration of the structural balance in 2010 that is nevertheless observed can partly be explained by higher interest expenditure and decreasing gas revenues but most importantly by various lagged effects, like increasing unemployment, which leads to higher expenditure and lower tax revenue than what would be suggested when using standard elasticities.

| (7) | The main goal of the programme's medium-term budgetary strategy is to bring the deficit below 3 % of GDP by 2013. The consolidation should start in 2011 provided growth prospects are positive, according to the programme. At face value, this goal would be in line with the recommendation under Article 126(7) TFEU. Although the programme mentions the commitment to meet the 2013 deadline by taking additional measures, the size and nature of these measures are not specified. Furthermore, the programme horizon does not cover 2013. The programme shows the nominal budget deficit improving to 5,0 % of GDP in 2011 (from 6,1 % in the previous year) and 4,5 % in 2012. The primary balance is expected to follow a similar pattern. The expected outcome for 2012 should be regarded as a technical outcome based on a no-policy-change assumption and not as a target. The programme's budgetary projections imply a required additional nominal improvement of the general government balance of more than 1,5 % of GDP in 2013 to bring the deficit below 3 % of GDP. The (recalculated) structural balance is expected to deteriorate to – 4,75 % of GDP in 2010 and to improve thereafter to – 4 % of GDP in 2011 and – 3,5 % of GDP in 2012. For 2011, the government budgetary strategy mainly consists in the (partial) withdrawal of the stimulus package amounting to approximately 0,5 % of GDP and consolidation measures amounting to 0,25 % of GDP (EUR 1,8 billion). The revenue ratio is expected to increase on the basis of the improved macroeconomic environment and the (partial) withdrawal of the stimulus package, whereas the expenditure ratio is expected to decrease due to the consolidation package, the improved macroeconomic environment and the (partial) withdrawal of the stimulus package. For 2012, the programme shows an increase in the revenue ratio and a stabilising expenditure ratio based on a no-policy-change assumption. The programme confirms the commitment to the new medium-term budgetary objective (MTO), which is a budgetary position of – 0,5 % of GDP in structural terms. Given the most recent projections and debt level, the MTO reflects the objectives of the Pact. However, the programme does not envisage achieving it within the programme period. |
| --- | --- |

(7)

The main goal of the programme's medium-term budgetary strategy is to bring the deficit below 3 % of GDP by 2013. The consolidation should start in 2011 provided growth prospects are positive, according to the programme. At face value, this goal would be in line with the recommendation under Article 126(7) TFEU. Although the programme mentions the commitment to meet the 2013 deadline by taking additional measures, the size and nature of these measures are not specified. Furthermore, the programme horizon does not cover 2013. The programme shows the nominal budget deficit improving to 5,0 % of GDP in 2011 (from 6,1 % in the previous year) and 4,5 % in 2012. The primary balance is expected to follow a similar pattern. The expected outcome for 2012 should be regarded as a technical outcome based on a no-policy-change assumption and not as a target. The programme's budgetary projections imply a required additional nominal improvement of the general government balance of more than 1,5 % of GDP in 2013 to bring the deficit below 3 % of GDP. The (recalculated) structural balance is expected to deteriorate to – 4,75 % of GDP in 2010 and to improve thereafter to – 4 % of GDP in 2011 and – 3,5 % of GDP in 2012. For 2011, the government budgetary strategy mainly consists in the (partial) withdrawal of the stimulus package amounting to approximately 0,5 % of GDP and consolidation measures amounting to 0,25 % of GDP (EUR 1,8 billion). The revenue ratio is expected to increase on the basis of the improved macroeconomic environment and the (partial) withdrawal of the stimulus package, whereas the expenditure ratio is expected to decrease due to the consolidation package, the improved macroeconomic environment and the (partial) withdrawal of the stimulus package. For 2012, the programme shows an increase in the revenue ratio and a stabilising expenditure ratio based on a no-policy-change assumption. The programme confirms the commitment to the new medium-term budgetary objective (MTO), which is a budgetary position of – 0,5 % of GDP in structural terms. Given the most recent projections and debt level, the MTO reflects the objectives of the Pact. However, the programme does not envisage achieving it within the programme period.

| (8) | The budgetary projections in the programme for 2010 appear plausible, but budgetary outcomes could turn out worse than projected for the year 2011 and beyond. In particular, the government's operations to stabilise the financial markets will probably in large part remain in place over the entire programme period and could have a negative impact on the budgetary targets. Although for 2010, the favourable macroeconomic scenario seems more than compensated by relatively cautious revenue projections in the programme which might even leave some room for over-performing the target, this does not appear to be the case for the rest of the programme period. Furthermore, not all savings of the consolidation measures may be realised from 2011 onwards. Finally, the social benefits might turn out higher than expected in the programme in view of the somewhat optimistic unemployment projections. The programme also does not fully explain the change in the revenue and expenditure ratios in 2012, when the programme projects a 0,5 % of GDP improvement of the balance without any measures. The projection is essentially based on favourable macroeconomic and elasticity assumptions. However, for both 2011 and 2012 it should be noted that the Dutch authorities are currently carrying out a fundamental budget review, which could serve as a basis for additional consolidation measures and should help strengthen the average annual fiscal effort from 2011 onwards as recommended and could therefore lead to a better-than-expected budgetary outcome, although the size and nature of any of these additional consolidation measures are not yet clear. The track record of the Dutch budgetary consolidation is relatively good and does not represent an additional risk in the current juncture. |
| --- | --- |

(8)

The budgetary projections in the programme for 2010 appear plausible, but budgetary outcomes could turn out worse than projected for the year 2011 and beyond. In particular, the government's operations to stabilise the financial markets will probably in large part remain in place over the entire programme period and could have a negative impact on the budgetary targets. Although for 2010, the favourable macroeconomic scenario seems more than compensated by relatively cautious revenue projections in the programme which might even leave some room for over-performing the target, this does not appear to be the case for the rest of the programme period. Furthermore, not all savings of the consolidation measures may be realised from 2011 onwards. Finally, the social benefits might turn out higher than expected in the programme in view of the somewhat optimistic unemployment projections. The programme also does not fully explain the change in the revenue and expenditure ratios in 2012, when the programme projects a 0,5 % of GDP improvement of the balance without any measures. The projection is essentially based on favourable macroeconomic and elasticity assumptions. However, for both 2011 and 2012 it should be noted that the Dutch authorities are currently carrying out a fundamental budget review, which could serve as a basis for additional consolidation measures and should help strengthen the average annual fiscal effort from 2011 onwards as recommended and could therefore lead to a better-than-expected budgetary outcome, although the size and nature of any of these additional consolidation measures are not yet clear. The track record of the Dutch budgetary consolidation is relatively good and does not represent an additional risk in the current juncture.

| (9) | The government gross debt-to-GDP ratio was above the Treaty reference value in 2009 and is on an increasing trend over the whole programme period. It is estimated at 62,3 % in 2009, up from 58,2 % in the year before. The increase in the debt ratio came in large part from the budget deficit and the decline in GDP growth, although it was mitigated by a significant positive stock-flow adjustment reflecting the repayment of government financial sector support. The debt ratio is projected to increase by a further 10 % of GDP over the programme period to 72,5 % in 2012, mainly driven by continued high government deficits. There are considerable risks to the general government gross debt level, stemming, first, from the risk of higher-than-targeted deficits, particularly in 2011, and, second and more importantly, from sizeable guarantees to the financial sector, which currently amount to almost 14 % of GDP. If the guarantees were activated, they would further increase the debt ratio. On the other hand, (early) repayments of government support by financial institutions could substantially lower the debt ratio. |
| --- | --- |

(9)

The government gross debt-to-GDP ratio was above the Treaty reference value in 2009 and is on an increasing trend over the whole programme period. It is estimated at 62,3 % in 2009, up from 58,2 % in the year before. The increase in the debt ratio came in large part from the budget deficit and the decline in GDP growth, although it was mitigated by a significant positive stock-flow adjustment reflecting the repayment of government financial sector support. The debt ratio is projected to increase by a further 10 % of GDP over the programme period to 72,5 % in 2012, mainly driven by continued high government deficits. There are considerable risks to the general government gross debt level, stemming, first, from the risk of higher-than-targeted deficits, particularly in 2011, and, second and more importantly, from sizeable guarantees to the financial sector, which currently amount to almost 14 % of GDP. If the guarantees were activated, they would further increase the debt ratio. On the other hand, (early) repayments of government support by financial institutions could substantially lower the debt ratio.

| (10) | Medium-term debt projections that assume GDP growth rates to gradually recover to the values projected before the crisis, tax ratios to return to pre-crisis levels and that include the projected increase in age-related expenditures show that the budgetary strategy envisaged in the programme, taken at face value and with no further policy change, would not be enough to stabilise the debt-to-GDP ratio by 2020. |
| --- | --- |

(10)

Medium-term debt projections that assume GDP growth rates to gradually recover to the values projected before the crisis, tax ratios to return to pre-crisis levels and that include the projected increase in age-related expenditures show that the budgetary strategy envisaged in the programme, taken at face value and with no further policy change, would not be enough to stabilise the debt-to-GDP ratio by 2020.

| (11) | The long-term budgetary impact of ageing is significantly higher than the EU average, due to relatively high increases in both pension and long-term care expenditure. Ensuring higher primary surpluses over the medium term together with structural reforms that curb the projected increase in age-related expenditure would contribute to reducing the risks to the sustainability of public finances which were assessed in the Commission 2009 Sustainability Report (3) as high. The proposed increase in the pension age by two years (from 65 to 67 years) by 2025 is estimated to narrow the sustainability gap and, if adopted, would be a first step in improving the sustainability of public finances. |
| --- | --- |

(11)

The long-term budgetary impact of ageing is significantly higher than the EU average, due to relatively high increases in both pension and long-term care expenditure. Ensuring higher primary surpluses over the medium term together with structural reforms that curb the projected increase in age-related expenditure would contribute to reducing the risks to the sustainability of public finances which were assessed in the Commission 2009 Sustainability Report (3) as high. The proposed increase in the pension age by two years (from 65 to 67 years) by 2025 is estimated to narrow the sustainability gap and, if adopted, would be a first step in improving the sustainability of public finances.

| (12) | The trend-based budgetary framework introduced in 1994 has been generally considered to be efficient and effective (4). Most important of this framework are the multi-annual expenditure ceilings and the role of independent organisations, particularly the CPB (5). The framework has a four-year horizon and is based on a macroeconomic scenario, which is provided for by the National Bureau for Economic Policy Analysis (CPB) (6) and ensures the objectivity and independence of these projections. A budgetary target is set for the four-year horizon, which is based on the fiscal challenges related to ageing and the requirements of the Stability and Growth Pact. From these budgetary targets, expenditure ceilings are derived, which form the cornerstone of the fiscal framework. In practice, the expenditure ceilings have been well respected. In March 2009, the government decided to remove the cyclically sensitive unemployment benefits from under the expenditure ceilings. This measure prevented that pro-cyclical budget cuts had to be made as a result of increasing unemployment and led to a strengthening of automatic stabilisers (by about 0,3 % of GDP in 2009). The trend-based budgetary framework seems to have played a beneficial role in the current fiscal situation. During an economic recovery, the trend-based fiscal framework will also have an important added value. While the automatic stabilisers are expected to automatically improve the budgetary stance, the ceilings on the expenditure side will serve as an instrument to control expenditure growth. |
| --- | --- |

(12)

The trend-based budgetary framework introduced in 1994 has been generally considered to be efficient and effective (4). Most important of this framework are the multi-annual expenditure ceilings and the role of independent organisations, particularly the CPB (5). The framework has a four-year horizon and is based on a macroeconomic scenario, which is provided for by the National Bureau for Economic Policy Analysis (CPB) (6) and ensures the objectivity and independence of these projections. A budgetary target is set for the four-year horizon, which is based on the fiscal challenges related to ageing and the requirements of the Stability and Growth Pact. From these budgetary targets, expenditure ceilings are derived, which form the cornerstone of the fiscal framework. In practice, the expenditure ceilings have been well respected. In March 2009, the government decided to remove the cyclically sensitive unemployment benefits from under the expenditure ceilings. This measure prevented that pro-cyclical budget cuts had to be made as a result of increasing unemployment and led to a strengthening of automatic stabilisers (by about 0,3 % of GDP in 2009). The trend-based budgetary framework seems to have played a beneficial role in the current fiscal situation. During an economic recovery, the trend-based fiscal framework will also have an important added value. While the automatic stabilisers are expected to automatically improve the budgetary stance, the ceilings on the expenditure side will serve as an instrument to control expenditure growth.

| (13) | In terms of the quality of public finances, the Netherlands can be considered a relative good performer in some areas. This is particularly the case in the fields of public infrastructure, general services and the fiscal governance. In the programme, the intention was announced to further improve the quality of public finances in the area of better regulation and the reduction of administrative burden. With respect to the administrative burden, the objective set in the programme is to achieve a net reduction of 25 % in 2011 compared to 2007. The authorities are currently undertaking a fundamental budget review (FBR), which is mainly focused on the expenditure side and aims at facilitating the decision-making process of structural reforms and consolidation measures. On the revenue side, the authorities are preparing a separate study for revision of the tax system, which aims at establishing a tax system that will generate stable revenues in the future with minimal disruption of the economy and the fairest possible distribution of the costs. This review could further enhance the quality of public finances in the medium to long term. |
| --- | --- |

(13)

In terms of the quality of public finances, the Netherlands can be considered a relative good performer in some areas. This is particularly the case in the fields of public infrastructure, general services and the fiscal governance. In the programme, the intention was announced to further improve the quality of public finances in the area of better regulation and the reduction of administrative burden. With respect to the administrative burden, the objective set in the programme is to achieve a net reduction of 25 % in 2011 compared to 2007. The authorities are currently undertaking a fundamental budget review (FBR), which is mainly focused on the expenditure side and aims at facilitating the decision-making process of structural reforms and consolidation measures. On the revenue side, the authorities are preparing a separate study for revision of the tax system, which aims at establishing a tax system that will generate stable revenues in the future with minimal disruption of the economy and the fairest possible distribution of the costs. This review could further enhance the quality of public finances in the medium to long term.

| (14) | Overall, the budgetary strategy for 2010 and 2011 set out in the programme is consistent with the Council recommendations under Article 126(7). From 2012 on, taken at face value and taking into account the risks mentioned above, the budgetary strategy would not seem consistent with the Council recommendations under Article 126(7), in particular as 2013 is not included in the programme horizon. In particular, for 2010, the programme's budgetary projections are slightly better than those in the 2010 budget, partly reflecting the better macro-economic scenario, and are subject to balanced risks. For the 2011-2012 period, the programme envisages a narrow average annual fiscal effort of 0,75 % of GDP, subject to the risks mentioned above. Regarding 2011, the programme's budgetary projections are underpinned by specified consolidation measures. On the other hand, the projected change in the structural balance in 2012 (0,5 % of GDP) is not backed by additional measures, but can also not be explained by using standard elasticities. This suggests that additional consolidation measures are needed to ensure the required annual average fiscal effort of 0,75 % of GDP over the period 2011-2013 as recommended by the Council, also taking into account the fact that 2013 is not covered in the programme. The programme's nominal government deficit of 4,5 % of GDP in 2012, derived under a no-policy-change assumption rather than representing a target, indicates that an additional improvement of at least 1,5 % of GDP is needed to meet the 2013 deadline. Given debt projections presented in the programme and the risks mentioned above, the current budgetary strategy is also not sufficient to bring the debt-to-GDP ratio back on a downward path. Although in the programme the government expresses its commitment to take additional policy measures to bring the deficit below the 3 % of GDP reference value by 2013, the programme does not contain indications how this would be achieved. |
| --- | --- |

(14)

Overall, the budgetary strategy for 2010 and 2011 set out in the programme is consistent with the Council recommendations under Article 126(7). From 2012 on, taken at face value and taking into account the risks mentioned above, the budgetary strategy would not seem consistent with the Council recommendations under Article 126(7), in particular as 2013 is not included in the programme horizon. In particular, for 2010, the programme's budgetary projections are slightly better than those in the 2010 budget, partly reflecting the better macro-economic scenario, and are subject to balanced risks. For the 2011-2012 period, the programme envisages a narrow average annual fiscal effort of 0,75 % of GDP, subject to the risks mentioned above. Regarding 2011, the programme's budgetary projections are underpinned by specified consolidation measures. On the other hand, the projected change in the structural balance in 2012 (0,5 % of GDP) is not backed by additional measures, but can also not be explained by using standard elasticities. This suggests that additional consolidation measures are needed to ensure the required annual average fiscal effort of 0,75 % of GDP over the period 2011-2013 as recommended by the Council, also taking into account the fact that 2013 is not covered in the programme. The programme's nominal government deficit of 4,5 % of GDP in 2012, derived under a no-policy-change assumption rather than representing a target, indicates that an additional improvement of at least 1,5 % of GDP is needed to meet the 2013 deadline. Given debt projections presented in the programme and the risks mentioned above, the current budgetary strategy is also not sufficient to bring the debt-to-GDP ratio back on a downward path. Although in the programme the government expresses its commitment to take additional policy measures to bring the deficit below the 3 % of GDP reference value by 2013, the programme does not contain indications how this would be achieved.

| (15) | As regards the data requirements specified in the code of conduct for stability and convergence programmes, the programme provides all required and most of the optional data. In its recommendations under Article 126(7) of 2 December 2009 with a view to bring the excessive deficit situation to an end, the Council also invited the Netherlands to report on progress made in the implementation of the Council’s recommendations in a separate chapter in the updates of the stability programmes. The Netherlands partly complied with this recommendation. In particular, the programme does not cover 2013, the final year of the correction period. |
| --- | --- |

(15)

As regards the data requirements specified in the code of conduct for stability and convergence programmes, the programme provides all required and most of the optional data. In its recommendations under Article 126(7) of 2 December 2009 with a view to bring the excessive deficit situation to an end, the Council also invited the Netherlands to report on progress made in the implementation of the Council’s recommendations in a separate chapter in the updates of the stability programmes. The Netherlands partly complied with this recommendation. In particular, the programme does not cover 2013, the final year of the correction period.

The overall conclusion is that the Netherlands is hit hard by the crisis, resulting in a sharp deterioration of the budget balance in 2009, which turned from a surplus of 0,7 % of GDP in 2008 to a deficit of 4,9 % of GDP, triggering the excessive deficit procedure. For 2010, a further deterioration is expected, most importantly due to various lagged effects, like increasing unemployment. The subsequent withdrawal of the fiscal stimulus and a consolidation package should improve the budget balance in 2011. For 2012, the improvement in the budget comes from cyclical conditions following the no-policy-change scenario. The debt ratio, which breached the 60 % Treaty reference value in 2009, is expected to increase substantially over the programme horizon. The adjustment path presented in the programme is subject to downside risks and would benefit from a strengthened consolidation beyond 2011. The main risks are related to the favourable macroeconomic assumptions combined with an annual fiscal effort that is a narrow 0,75 % of GDP, which was recommended by the Council. The programme includes a commitment to take additional policy measures in order to meet the 2013 deadline. However, as 2013 is not covered by the programme, it is not possible to fully assess the budgetary strategy. Therefore, more information on the broad strategy underpinning the correction of the excessive deficit, including in particular 2013, would be welcome. Ensuring higher primary surpluses over the medium term and implementing reform measures that curb the projected increase in age-related expenditure would contribute to reducing high risks to the sustainability of public finances. The recently proposed pension reform would be considered as an important first step, if adopted.

In view of the above assessment and also in the light of the recommendation under Article 126 TFEU of 2 December 2009, the Netherlands is invited to:

| (i) | in the context of the fundamental budget review, specify the measures supporting the consolidation from 2011 and especially in the following years, further strengthen the consolidation effort to secure the required average annual fiscal effort to bring the deficit below 3 % of GDP by 2013, and throughout the programme period use windfalls related to an improvement of the macroeconomic and fiscal outlook to accelerate the deficit reduction and the decline of the gross debt ratio back towards the reference value; |
| --- | --- |

(i)

in the context of the fundamental budget review, specify the measures supporting the consolidation from 2011 and especially in the following years, further strengthen the consolidation effort to secure the required average annual fiscal effort to bring the deficit below 3 % of GDP by 2013, and throughout the programme period use windfalls related to an improvement of the macroeconomic and fiscal outlook to accelerate the deficit reduction and the decline of the gross debt ratio back towards the reference value;

| (ii) | further improve the long-term sustainability of public finances by implementing structural reforms that curb the projected increase in age-related expenditure. |
| --- | --- |

(ii)

further improve the long-term sustainability of public finances by implementing structural reforms that curb the projected increase in age-related expenditure.

The Netherlands are also invited to provide more information on the path and the broad measures underpinning the envisaged consolidation in the outer years as soon as the information becomes available and at the latest in the EDP chapter of the forthcoming Stability Programme.

Comparison of key macroeconomic and budgetary projections

| | 2008 | 2009 | 2010 | 2011 | 2012 |
| --- | --- | --- | --- | --- | --- |
| Real GDP
  (% change) | SP Jan 2010 | 2,0 | –4 | 1,5 | 2 | 2 |
| COM Nov 2009 | 2,0 | –4,5 | 0,3 | 1,6 | n.a. |
| SP Nov 2008 | 2,25 | 1,25 | 2 | 2 | n.a. |
| HICP inflation
  (%) | SP Jan 2010 | 2,2 | 1 | 1 | 1 | 1 |
| COM Nov 2009 | 2,2 | 1,1 | 0,9 | 1,2 | n.a. |
| SP Nov 2008 | 2,5 | 3,25 | 2 | 2 | n.a. |
| Output gap (7)

  (% of potential GDP) | SP Jan 2010 | 2,6 | –2,7 | –2,3 | –1,9 | –1,8 |
| COM Nov 2009 (8) | 3,0 | –2,7 | –3,1 | –2,4 | n.a. |
| SP Nov 2008 | 0,7 | –0,1 | –0,5 | –0,6 | n.a. |
| Net lending/borrowing vis-à-vis the rest of the world
  (% of GDP) | SP Jan 2010 | 4,2 | 4,5 | 5,75 | 6,25 | 6,25 |
| COM Nov 2009 | 3,9 | 2,7 | 2,7 | 3,6 | n.a. |
| SP Nov 2008 | 8,5 | 9,5 | 7,5 | 8,0 | n.a. |
| General government revenue
  (% of GDP) | SP Jan 2010 | 45,6 | 44,4 | 44,3 | 44,9 | 45,5 |
| COM Nov 2009 | 46,6 | 44,8 | 44,8 | 45,1 | n.a. |
| SP Nov 2008 | 46,6 | 46,3 | 46,1 | 46,3 | n.a. |
| General government expenditure
  (% of GDP) | SP Jan 2010 | 44,9 | 49,3 | 50,4 | 49,9 | 50,0 |
| COM Nov 2009 | 45,9 | 49,5 | 50,9 | 50,7 | n.a. |
| SP Nov 2008 | 45,4 | 45,1 | 45,3 | 45,2 | n.a. |
| General government balance
  (% of GDP) | SP Jan 2010 | 0,7 | –4,9 | –6,1 | –5,0 | –4,5 |
| COM Nov 2009 | 0,7 | –4,7 | –6,1 | –5,6 | n.a. |
| SP Nov 2008 | 1,2 | 1,2 | 0,8 | 1,1 | n.a. |
| Primary balance
  (% of GDP) | SP Jan 2010 | 2,8 | –2,5 | –3,7 | –2,6 | –2,0 |
| COM Nov 2009 | 2,8 | –2,3 | –3,7 | –3,1 | n.a. |
| SP Nov 2008 | 3,4 | 3,3 | 2,9 | 3,1 | n.a. |
| Cyclically adjusted balance (7)

  (% of GDP) | SP Jan 2010 | –0,8 | –3,4 | –4,8 | –3,9 | –3,5 |
| COM Nov 2009 | –1,0 | –3,2 | –4,4 | –4,3 | n.a. |
| SP Nov 2008 | 0,8 | 1,3 | 1,1 | 1,5 | n.a. |
| Structural balance (9)

  (% of GDP) | SP Jan 2010 | –0,6 | –3,8 | –4,8 | –3,9 | –3,5 |
| COM Nov 2009 | –1,0 | –3,6 | –4,4 | –4,3 | n.a. |
| SP Nov 2008 | 0,8 | 1,0 | 1,1 | 1,5 | n.a. |
| Government gross debt
  (% of GDP) | SP Jan 2010 | 58,2 | 62,3 | 67,2 | 69,6 | 72,5 |
| COM Nov 2009 | 58,2 | 59,8 | 65,6 | 69,7 | n.a. |
| SP Nov 2008 | 42,1 | 39,6 | 38,0 | 36,2 | n.a. |
| Stability programme (SP); Commission services’ autumn 2009 forecasts (COM); Commission services’ calculations. |

2008

2009

2010

2011

2012

Real GDP

(% change)

SP Jan 2010

2,0

–4

1,5

2

2

COM Nov 2009

2,0

–4,5

0,3

1,6

n.a.

SP Nov 2008

2,25

1,25

2

2

n.a.

HICP inflation

(%)

SP Jan 2010

2,2

1

1

1

1

COM Nov 2009

2,2

1,1

0,9

1,2

n.a.

SP Nov 2008

2,5

3,25

2

2

n.a.

Output gap (7)

(% of potential GDP)

SP Jan 2010

2,6

–2,7

–2,3

–1,9

–1,8

COM Nov 2009 (8)

3,0

–2,7

–3,1

–2,4

n.a.

SP Nov 2008

0,7

–0,1

–0,5

–0,6

n.a.

Net lending/borrowing vis-à-vis the rest of the world

(% of GDP)

SP Jan 2010

4,2

4,5

5,75

6,25

6,25

COM Nov 2009

3,9

2,7

2,7

3,6

n.a.

SP Nov 2008

8,5

9,5

7,5

8,0

n.a.

General government revenue

(% of GDP)

SP Jan 2010

45,6

44,4

44,3

44,9

45,5

COM Nov 2009

46,6

44,8

44,8

45,1

n.a.

SP Nov 2008

46,6

46,3

46,1

46,3

n.a.

General government expenditure

(% of GDP)

SP Jan 2010

44,9

49,3

50,4

49,9

50,0

COM Nov 2009

45,9

49,5

50,9

50,7

n.a.

SP Nov 2008

45,4

45,1

45,3

45,2

n.a.

General government balance

(% of GDP)

SP Jan 2010

0,7

–4,9

–6,1

–5,0

–4,5

COM Nov 2009

0,7

–4,7

–6,1

–5,6

n.a.

SP Nov 2008

1,2

1,2

0,8

1,1

n.a.

Primary balance

(% of GDP)

SP Jan 2010

2,8

–2,5

–3,7

–2,6

–2,0

COM Nov 2009

2,8

–2,3

–3,7

–3,1

n.a.

SP Nov 2008

3,4

3,3

2,9

3,1

n.a.

Cyclically adjusted balance (7)

(% of GDP)

SP Jan 2010

–0,8

–3,4

–4,8

–3,9

–3,5

COM Nov 2009

–1,0

–3,2

–4,4

–4,3

n.a.

SP Nov 2008

0,8

1,3

1,1

1,5

n.a.

Structural balance (9)

(% of GDP)

SP Jan 2010

–0,6

–3,8

–4,8

–3,9

–3,5

COM Nov 2009

–1,0

–3,6

–4,4

–4,3

n.a.

SP Nov 2008

0,8

1,0

1,1

1,5

n.a.

Government gross debt

(% of GDP)

SP Jan 2010

58,2

62,3

67,2

69,6

72,5

COM Nov 2009

58,2

59,8

65,6

69,7

n.a.

SP Nov 2008

42,1

39,6

38,0

36,2

n.a.

Stability programme (SP); Commission services’ autumn 2009 forecasts (COM); Commission services’ calculations.

---

(1)  OJ L 209, 2.8.1997, p. 1. The documents referred to in this text can be found at the following website: http://ec.europa.eu/economy_finance/sgp/index_en.htm

(2)  The assessment notably takes into account the Commission services’ autumn 2009 forecast, but also other information that has become available since then, including the Commission services’ 2010 February interim forecast.

(3)  In the Council conclusions from 10 November 2009 on sustainability of public finances ‘the Council calls on Member States to focus attention to sustainability-oriented strategies in their upcoming stability and convergence programmes’ and further ‘invites the Commission, together with the Economic Policy Committee and the Economic and Financial Committee, to further develop methodologies for assessing the long-term sustainability of public finances in time for the next Sustainability report’, which is foreseen in 2012.

(4)  See for example IMF, 2001a, Code of good practices on fiscal transparency and OECD, 2002, Best practices for budget transparency, OECD journal on budgeting.

(5)  See also IMF (2005) Country Report 05/225 and the European Commission (2007) Public Finances in EMU 2007 and Bos, F., ‘The Dutch fiscal framework; history, current practice and the role of the CPB’, CPB document 150, Netherlands Bureau for Economic Policy Analysis, The Hague, July 2007.

(6)  The National Bureau for Economic Policy Analysis is better known as Centraal Planbureau (CPB) and is an independent governmental forecasting institution.

(7)  Output gaps and cyclically adjusted balances according to the programmes as recalculated by Commission services on the basis of the information in the programmes.

(8)  Based on estimated potential growth of 1,7 %, 1,1 %, 0,7 % and 0,9 % respectively in the period 2008-2011.

(9)  Cyclically adjusted balance excluding one-off and other temporary measures. One-off and other temporary measures are 0,4 % of GDP in 2009, deficit-reducing, according to both the most recent programme and the Commission services’ November 2009 forecast.

Source:

Stability programme (SP); Commission services’ autumn 2009 forecasts (COM); Commission services’ calculations.

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| 4.6.2010 | EN | Official Journal of the European Union | C 146/18 |
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4.6.2010

EN

Official Journal of the European Union

C 146/18

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COUNCIL OPINION

on the updated convergence programme of the United Kingdom, 2009/2010-2014/2015

2010/C 146/04

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union,

Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies (1), and in particular Article 9(3) thereof,

Having regard to the recommendation of the Commission,

After consulting the Economic and Financial Committee,

HAS DELIVERED THIS OPINION:

| (1) | On 26 April 2010 the Council examined the updated convergence programme of the United Kingdom, which covers the period 2009/2010 to 2014/2015. |
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(1)

On 26 April 2010 the Council examined the updated convergence programme of the United Kingdom, which covers the period 2009/2010 to 2014/2015.

| (2) | The economic and financial crisis, which began in 2007 after several years of strong growth, saw UK economic output fall cumulatively by around 6 %, with modest recovery starting to appear in the final quarter of 2009. The crisis was preceded and partly aggravated by a period of progressive increases in leverage of the household and financial sectors, such that a dependence on net capital inflows was large and persistent. In response to the unfolding crisis, the Bank of England responded with an aggressive programme of interest rate reductions, liquidity support for the banking sector and, from March 2009, quantitative easing. The government also intervened extensively to stabilise the financial system, including by major equity injections, deposit guarantees and the provision of liability insurance. In line with the EERP, the government implemented a sizeable fiscal stimulus, which in combination with the operation of automatic stabilisers and the effects on revenue of falls in asset prices contributed to a major deterioration in public finances. The weakening of the sustainability of UK public finances was aggravated by the fact that the primary balance was already in substantial structural deficit in the period leading up to the crisis, leading to the general government headline deficit soon going well above the 3 % of GDP reference value as the crisis unfolded. Accordingly, the United Kingdom was made subject to an excessive deficit procedure on 8 July 2008 and on 2 December 2009 the Council issued the latest recommendations in accordance with Article 126(7) of the Treaty on the Functioning of the European Union (TFEU) to correct the deficit by 2014/2015. The main challenges for the UK economy over the next years are to stabilise the public finances in the context of ongoing efforts by the household sector to reduce outstanding gearing; to achieve adequate levels of credit provision from a still fragile financial system, with many credit providers having reduced their lending capacity; and to underpin a shift of production towards greater tradeable output so as to permanently improve its external balance. |
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(2)

The economic and financial crisis, which began in 2007 after several years of strong growth, saw UK economic output fall cumulatively by around 6 %, with modest recovery starting to appear in the final quarter of 2009. The crisis was preceded and partly aggravated by a period of progressive increases in leverage of the household and financial sectors, such that a dependence on net capital inflows was large and persistent. In response to the unfolding crisis, the Bank of England responded with an aggressive programme of interest rate reductions, liquidity support for the banking sector and, from March 2009, quantitative easing. The government also intervened extensively to stabilise the financial system, including by major equity injections, deposit guarantees and the provision of liability insurance. In line with the EERP, the government implemented a sizeable fiscal stimulus, which in combination with the operation of automatic stabilisers and the effects on revenue of falls in asset prices contributed to a major deterioration in public finances. The weakening of the sustainability of UK public finances was aggravated by the fact that the primary balance was already in substantial structural deficit in the period leading up to the crisis, leading to the general government headline deficit soon going well above the 3 % of GDP reference value as the crisis unfolded. Accordingly, the United Kingdom was made subject to an excessive deficit procedure on 8 July 2008 and on 2 December 2009 the Council issued the latest recommendations in accordance with Article 126(7) of the Treaty on the Functioning of the European Union (TFEU) to correct the deficit by 2014/2015. The main challenges for the UK economy over the next years are to stabilise the public finances in the context of ongoing efforts by the household sector to reduce outstanding gearing; to achieve adequate levels of credit provision from a still fragile financial system, with many credit providers having reduced their lending capacity; and to underpin a shift of production towards greater tradeable output so as to permanently improve its external balance.

| (3) | Although much of the observed decline in actual GDP in the context of the crisis is cyclical, the level of potential output has also been negatively affected. In addition, the crisis may also affect potential growth in the medium term through lower investment and lower credit availability. Moreover, the impact of the economic crisis compounds the negative effects of demographic ageing on potential output and the sustainability of public finances. Against this background it will be essential to accelerate the pace of structural reforms with the aim of supporting potential growth. In particular, for the United Kingdom it is important to undertake reforms that improve skill levels and raise productivity. |
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(3)

Although much of the observed decline in actual GDP in the context of the crisis is cyclical, the level of potential output has also been negatively affected. In addition, the crisis may also affect potential growth in the medium term through lower investment and lower credit availability. Moreover, the impact of the economic crisis compounds the negative effects of demographic ageing on potential output and the sustainability of public finances. Against this background it will be essential to accelerate the pace of structural reforms with the aim of supporting potential growth. In particular, for the United Kingdom it is important to undertake reforms that improve skill levels and raise productivity.

| (4) | The programme contains two macroeconomic scenarios: a central scenario and a more cautious alternative scenario based on trend growth one quarter of a percentage point lower than the central view. The public finance projections are based on the alternative scenario, which is considered the reference scenario in the assessment of the updated programme. This scenario envisages a recovery in GDP growth to 2 % in 2010/2011 and to 3,25 % per annum between 2011/2012 and 2014/2015. However, as a result of recent data now even this more cautious scenario, finalised in early December 2009, appears to be based on favourable growth assumptions, notably for the years 2010/2011 and 2011/2012 (2). The projections for inflation appear realistic. The programme does not include explicit exchange rate forecasts, and assumes a positive contribution to GDP growth from net trade, the stock cycle and — from 2011 onwards — domestic demand, in particular fixed investment and household spending. These assumptions are broadly plausible. The net trade contribution is in line with Commission forecasts although the negative net trade contribution in the second half of 2009 weighs negatively on these projections. A potential slowdown in disposable income growth due inter alia to an insufficient labour market recovery and a further increase in the household savings ratio constitute two downside risks to household spending. |
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(4)

The programme contains two macroeconomic scenarios: a central scenario and a more cautious alternative scenario based on trend growth one quarter of a percentage point lower than the central view. The public finance projections are based on the alternative scenario, which is considered the reference scenario in the assessment of the updated programme. This scenario envisages a recovery in GDP growth to 2 % in 2010/2011 and to 3,25 % per annum between 2011/2012 and 2014/2015. However, as a result of recent data now even this more cautious scenario, finalised in early December 2009, appears to be based on favourable growth assumptions, notably for the years 2010/2011 and 2011/2012 (2). The projections for inflation appear realistic. The programme does not include explicit exchange rate forecasts, and assumes a positive contribution to GDP growth from net trade, the stock cycle and — from 2011 onwards — domestic demand, in particular fixed investment and household spending. These assumptions are broadly plausible. The net trade contribution is in line with Commission forecasts although the negative net trade contribution in the second half of 2009 weighs negatively on these projections. A potential slowdown in disposable income growth due inter alia to an insufficient labour market recovery and a further increase in the household savings ratio constitute two downside risks to household spending.

| (5) | The programme estimates the general government deficit in 2009/2010 at 12,7 % of GDP. The significant deterioration from a deficit of 6,8 % of GDP in 2008/2009 reflects to a large extent the impact of the crisis on government finances. The fall in the government revenue ratio and the increase in the expenditure ratio in 2009/2010, adjusted for the denominator effect from the sharp drop in nominal GDP, are estimated to have contributed around 45 % and 55 % respectively of the deterioration in the government deficit. The impact of the contraction in economic activity on public finances was magnified by the association of the recession with severe downturns in the financial and housing markets, each of which had been hitherto major sources of revenue. In addition, around one-quarter of the increase in the deficit in 2009/2010 was brought about by the stimulus measures totalling 1,25 % of GDP which the government adopted in line with the European Economic Recovery Plan (EERP), alongside the decision to allow the automatic stabilisers to operate in full to support the economy. However, the rapid deterioration in public finances has severely affected the UK's scope to implement looser fiscal policy while maintaining budgetary sustainability and calls for a rapid improvement in the budgetary position. In line with the exit strategy advocated by the Council, and with a view to correcting the excessive deficit by 2014/2015 and returning to a sustainable public finance position, further fiscal tightening needs to be implemented. Implementation of consolidation plans set out in the programme will help to support sustainability in the medium-term and improve the fiscal position. |
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(5)

The programme estimates the general government deficit in 2009/2010 at 12,7 % of GDP. The significant deterioration from a deficit of 6,8 % of GDP in 2008/2009 reflects to a large extent the impact of the crisis on government finances. The fall in the government revenue ratio and the increase in the expenditure ratio in 2009/2010, adjusted for the denominator effect from the sharp drop in nominal GDP, are estimated to have contributed around 45 % and 55 % respectively of the deterioration in the government deficit. The impact of the contraction in economic activity on public finances was magnified by the association of the recession with severe downturns in the financial and housing markets, each of which had been hitherto major sources of revenue. In addition, around one-quarter of the increase in the deficit in 2009/2010 was brought about by the stimulus measures totalling 1,25 % of GDP which the government adopted in line with the European Economic Recovery Plan (EERP), alongside the decision to allow the automatic stabilisers to operate in full to support the economy. However, the rapid deterioration in public finances has severely affected the UK's scope to implement looser fiscal policy while maintaining budgetary sustainability and calls for a rapid improvement in the budgetary position. In line with the exit strategy advocated by the Council, and with a view to correcting the excessive deficit by 2014/2015 and returning to a sustainable public finance position, further fiscal tightening needs to be implemented. Implementation of consolidation plans set out in the programme will help to support sustainability in the medium-term and improve the fiscal position.

| (6) | The update projects a year-on-year decline in the general government deficit ratio in 2010/2011 by 0,6 percentage point, to 12,1 % of GDP. The modest improvement in the government deficit entirely reflects a planned increase in government revenue by 6,5 % in nominal terms, around one-third of which is due to the increase in the VAT rate to its pre-stimulus level implemented in January 2010. On the other hand, government expenditure is projected to continue growing at a high, albeit slower, pace: up by around 4,5 % nominal and 2,25 % in real terms over the preceding year and leaving the expenditure-to-GDP ratio unchanged from the previous year. Overall, the discretionary measures that will come into force in 2010/2011, including those announced in the 2008 Pre-Budget Report of November 2008 and in the 2009 Budget of April 2009, will reduce the government deficit by around 1,0 % of GDP. The structural balance, defined as the cyclically-adjusted balance net of one-off and other temporary measures, in 2010/2011 is estimated to improve by even less, at 1⁄4 % of GDP. The estimated improvement in the structural budget deficit is significantly lower than the net effect of the above-mentioned discretionary measures, reflecting continued composition effects depressing overall revenue elasticity. |
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(6)

The update projects a year-on-year decline in the general government deficit ratio in 2010/2011 by 0,6 percentage point, to 12,1 % of GDP. The modest improvement in the government deficit entirely reflects a planned increase in government revenue by 6,5 % in nominal terms, around one-third of which is due to the increase in the VAT rate to its pre-stimulus level implemented in January 2010. On the other hand, government expenditure is projected to continue growing at a high, albeit slower, pace: up by around 4,5 % nominal and 2,25 % in real terms over the preceding year and leaving the expenditure-to-GDP ratio unchanged from the previous year. Overall, the discretionary measures that will come into force in 2010/2011, including those announced in the 2008 Pre-Budget Report of November 2008 and in the 2009 Budget of April 2009, will reduce the government deficit by around 1,0 % of GDP. The structural balance, defined as the cyclically-adjusted balance net of one-off and other temporary measures, in 2010/2011 is estimated to improve by even less, at 1⁄4 % of GDP. The estimated improvement in the structural budget deficit is significantly lower than the net effect of the above-mentioned discretionary measures, reflecting continued composition effects depressing overall revenue elasticity.

| (7) | Although the programme does set out plans for a fiscal consolidation from 2010/2011, the update does not present a medium-term objective for the budgetary position that would bring public finances on a sustainable path (3). This is not in line with the requirements of the Stability and Growth Pact. The programme's medium-term fiscal strategy is significantly less ambitious than recommended by the Council under Article 126(7) on 2 December 2009 and not in conformity with the recommendation to reduce the deficit to below 3 % of GDP by 2014/2015.
  In particular, the government deficit in 2014/2015 — the deadline set in the Council recommendation for the UK to bring the deficit below 3 % of GDP — is projected in the programme at 4,7 % of GDP. The annual average improvement in the structural deficit, as recalculated by the Commission services using the commonly-agreed methodology, between 2010/2011 and 2014/2015 is estimated at only 1,0 % of GDP, 0,75 pp., less than recommended by the Council in December 2009. Around 60 % of the 7,5 pps., reduction of the government deficit ratio between 2011/2012 and 2014/2015 is due to the planned tightening in expenditure growth. Government primary expenditure during these years is planned to increase by an annual average of around 1,5 %, which implies a reduction in real terms by an annual average of 0,75 %. Almost one-quarter of the drop in the expenditure ratio between 2011/2012 and 2014/2015 is due to a reduction in investment spending. Revenue-increasing discretionary measures, including an additional top rate of income tax in April 2010 and as from April 2011 a planned increase in social security contribution rates, account for around 10 % of the forecast reduction in the budget deficit from 2011/2012 onwards, while around 30 % of the improvement in the headline deficit is due to the cyclical recovery envisaged in the programme. The 2010 Budget, which was presented on 24 March 2010, estimates a deficit in 2009/2010 of 0,5 % of GDP less than projected in the programme, with the better-than-expected outturn contributing to a lower deficit in subsequent years. The Budget announced new fiscal tightening measures amounting to 0,1 % of GDP over the entire programme period and the deficit in 2014/2015 is projected at 4,2 % of GDP. |
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(7)

Although the programme does set out plans for a fiscal consolidation from 2010/2011, the update does not present a medium-term objective for the budgetary position that would bring public finances on a sustainable path (3). This is not in line with the requirements of the Stability and Growth Pact. The programme's medium-term fiscal strategy is significantly less ambitious than recommended by the Council under Article 126(7) on 2 December 2009 and not in conformity with the recommendation to reduce the deficit to below 3 % of GDP by 2014/2015.

In particular, the government deficit in 2014/2015 — the deadline set in the Council recommendation for the UK to bring the deficit below 3 % of GDP — is projected in the programme at 4,7 % of GDP. The annual average improvement in the structural deficit, as recalculated by the Commission services using the commonly-agreed methodology, between 2010/2011 and 2014/2015 is estimated at only 1,0 % of GDP, 0,75 pp., less than recommended by the Council in December 2009. Around 60 % of the 7,5 pps., reduction of the government deficit ratio between 2011/2012 and 2014/2015 is due to the planned tightening in expenditure growth. Government primary expenditure during these years is planned to increase by an annual average of around 1,5 %, which implies a reduction in real terms by an annual average of 0,75 %. Almost one-quarter of the drop in the expenditure ratio between 2011/2012 and 2014/2015 is due to a reduction in investment spending. Revenue-increasing discretionary measures, including an additional top rate of income tax in April 2010 and as from April 2011 a planned increase in social security contribution rates, account for around 10 % of the forecast reduction in the budget deficit from 2011/2012 onwards, while around 30 % of the improvement in the headline deficit is due to the cyclical recovery envisaged in the programme. The 2010 Budget, which was presented on 24 March 2010, estimates a deficit in 2009/2010 of 0,5 % of GDP less than projected in the programme, with the better-than-expected outturn contributing to a lower deficit in subsequent years. The Budget announced new fiscal tightening measures amounting to 0,1 % of GDP over the entire programme period and the deficit in 2014/2015 is projected at 4,2 % of GDP.

| (8) | The budgetary outcomes could turn out worse than projected in the programme over the whole period. The Commission services’ autumn 2009 forecast projects weaker economic growth in 2010/2011 and 2011/2012, while according to the Commission services’ assessment the UK's annual economic growth between 2012/2013 and 2014/2015 is unlikely to reach 3,25 % per annum, as the programme assumes. The markedly favourable macroeconomic context envisaged in the programme carries risks for the fiscal projections in the programme.
  Lower-than-expected economic growth from 2011/2012 onwards would lead to an overshoot of the government deficit projected in the programme. Whilst the government's medium-term consolidation programme is largely driven by the assumption of considerable and unprecedented primary expenditure restraint, for the years between 2011/2012 and 2014/2015 this assumption is not yet backed by detailed departmental expenditure plans (which currently extend only to the end of the 2010/2011 financial year). The absence of detailed departmental spending limits to back-up the programme's aggregate expenditure assumptions represents a further source of uncertainty on the programme's medium-term fiscal plan. The sharp slowdown in medium-term spending growth that is targeted in the update implies considerable efficiency challenges as well as extensive reprioritisation for the public sector. In general, there are considerable implementation challenges attached to the hitherto unprecedented degree of planned expenditure restraint which will need to be sustained over a prolonged period. The United Kingdom has also assumed substantial contingent liabilities as a result of its financial sector interventions. Under its Asset Protection Scheme, the government has agreed to insure banking sector assets amounting to almost 20 % of GDP. While the extent to which the insured loans and investments are at risk of default is subject to high uncertainty, the scheme could result in a net cost for government, if the costs of the government support were not fully recouped in the future. This could thereby reduce the pace of fiscal consolidation. |
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(8)

The budgetary outcomes could turn out worse than projected in the programme over the whole period. The Commission services’ autumn 2009 forecast projects weaker economic growth in 2010/2011 and 2011/2012, while according to the Commission services’ assessment the UK's annual economic growth between 2012/2013 and 2014/2015 is unlikely to reach 3,25 % per annum, as the programme assumes. The markedly favourable macroeconomic context envisaged in the programme carries risks for the fiscal projections in the programme.

Lower-than-expected economic growth from 2011/2012 onwards would lead to an overshoot of the government deficit projected in the programme. Whilst the government's medium-term consolidation programme is largely driven by the assumption of considerable and unprecedented primary expenditure restraint, for the years between 2011/2012 and 2014/2015 this assumption is not yet backed by detailed departmental expenditure plans (which currently extend only to the end of the 2010/2011 financial year). The absence of detailed departmental spending limits to back-up the programme's aggregate expenditure assumptions represents a further source of uncertainty on the programme's medium-term fiscal plan. The sharp slowdown in medium-term spending growth that is targeted in the update implies considerable efficiency challenges as well as extensive reprioritisation for the public sector. In general, there are considerable implementation challenges attached to the hitherto unprecedented degree of planned expenditure restraint which will need to be sustained over a prolonged period. The United Kingdom has also assumed substantial contingent liabilities as a result of its financial sector interventions. Under its Asset Protection Scheme, the government has agreed to insure banking sector assets amounting to almost 20 % of GDP. While the extent to which the insured loans and investments are at risk of default is subject to high uncertainty, the scheme could result in a net cost for government, if the costs of the government support were not fully recouped in the future. This could thereby reduce the pace of fiscal consolidation.

| (9) | Government gross debt is estimated at around 73 % of GDP in 2009/2010, up from 55,5 % in the preceding year. Around three-fifths of the increase in the debt ratio in 2009/2010 reflects the high primary deficit, while a stock-flow adjustment as a result of government borrowing to finance the purchase of banking sector equity and lending to commercial financial institutions contributed to a rise in the debt ratio by almost 3,75 percentage points. The debt ratio is projected to increase by a further 18,25 pps., between 2010/2011 and 2014/2015. By the latter year, the programme projects a stabilisation in the debt ratio at around 91,5 % of GDP, as the contribution to the debt ratio of high nominal GDP growth is expected to offset the increase in government debt due to the primary balance, which is set to remain in deficit by the end of the programme period, and interest payments, which are expected to increase from 2,25 % of GDP in 2009/2010 to almost 4 % in 2013/2014. The debt ratio is also subject to a number of risks over the programme period. On the positive side, the successful sale of banking sector equity acquired as a result of the government's financial sector interventions could be used to reduce government debt. Negative risks to the debt ratio mainly stem from the likelihood of higher-than-projected deficits and from an adverse GDP denominator effect as a result of lower real economic growth; the impact of possibly higher borrowing costs, from global or domestic market influences, should be relatively contained, given the UK's long maturity structure, although would still be unhelpful. |
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(9)

Government gross debt is estimated at around 73 % of GDP in 2009/2010, up from 55,5 % in the preceding year. Around three-fifths of the increase in the debt ratio in 2009/2010 reflects the high primary deficit, while a stock-flow adjustment as a result of government borrowing to finance the purchase of banking sector equity and lending to commercial financial institutions contributed to a rise in the debt ratio by almost 3,75 percentage points. The debt ratio is projected to increase by a further 18,25 pps., between 2010/2011 and 2014/2015. By the latter year, the programme projects a stabilisation in the debt ratio at around 91,5 % of GDP, as the contribution to the debt ratio of high nominal GDP growth is expected to offset the increase in government debt due to the primary balance, which is set to remain in deficit by the end of the programme period, and interest payments, which are expected to increase from 2,25 % of GDP in 2009/2010 to almost 4 % in 2013/2014. The debt ratio is also subject to a number of risks over the programme period. On the positive side, the successful sale of banking sector equity acquired as a result of the government's financial sector interventions could be used to reduce government debt. Negative risks to the debt ratio mainly stem from the likelihood of higher-than-projected deficits and from an adverse GDP denominator effect as a result of lower real economic growth; the impact of possibly higher borrowing costs, from global or domestic market influences, should be relatively contained, given the UK's long maturity structure, although would still be unhelpful.

| (10) | Medium-term debt projections that assume GDP growth rates to only gradually recover to the values projected before the crisis, and tax ratios to return to pre-crisis levels and that include the projected increase in age-related expenditures show that the budgetary strategy envisaged in the programme, taken at face value and with no further policy, would be enough to stabilise the debt-to-GDP ratio by 2020. |
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(10)

Medium-term debt projections that assume GDP growth rates to only gradually recover to the values projected before the crisis, and tax ratios to return to pre-crisis levels and that include the projected increase in age-related expenditures show that the budgetary strategy envisaged in the programme, taken at face value and with no further policy, would be enough to stabilise the debt-to-GDP ratio by 2020.

| (11) | Whereas the long-term budgetary impact of ageing is close to the EU average, the budgetary position in 2009 as estimated in the programme constitutes a risk to sustainable public finances even before the long-term budgetary impact of an ageing population is considered. Achieving primary surpluses in the medium term together with structural reforms would contribute to reducing the risks to the sustainability of public finances which were assessed in the Commission 2009 Sustainability Report (4) as high. The gross debt ratio is above the Treaty reference value over the whole programme period. |
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(11)

Whereas the long-term budgetary impact of ageing is close to the EU average, the budgetary position in 2009 as estimated in the programme constitutes a risk to sustainable public finances even before the long-term budgetary impact of an ageing population is considered. Achieving primary surpluses in the medium term together with structural reforms would contribute to reducing the risks to the sustainability of public finances which were assessed in the Commission 2009 Sustainability Report (4) as high. The gross debt ratio is above the Treaty reference value over the whole programme period.

| (12) | The Fiscal Responsibility Act (FRA), which was approved by Parliament on 10 February 2010, has established a statutory fiscal plan for the UK authorities. The FRA sets out a Fiscal Consolidation Plan (FCP) requiring that the government ‘halves public sector net borrowing as a share of GDP over four years from its forecast peak in 2009/2010. The Government is setting a target, in secondary legislation enabled by the Bill, for borrowing to be 5,5 per cent of GDP or less in 2013/2014’. The FCP also requires the government to: ‘reduce borrowing as a share of GDP in each and every year from 2009/2010 to 2015/2016, and ensure that public sector net debt is falling as a share of GDP in 2015/2016’. More specific spending control is exercised through a system of multi-year ‘spending reviews’, setting out overall spending envelopes and department-by-department limits for predictable expenditure (‘departmental expenditure limits’). However, public spending has not always been sufficiently contained, with total expenditure outturns between 2002/2003 and 2008/2009 on average exceeding the original ceilings set out in the spending reviews. The Fiscal Responsibility Act also requires the government ‘to provide an explanation (to Parliament) if the targets are missed’. To reduce the risk of missing the targets, a strengthening of the mechanism to assess their realism and a contingency plan — to be implemented if the underlying assumptions and macroeconomic forecasts prove inaccurate — would be useful.
  Overall, while the FRA is a step in the right direction, the consolidation plan set out in the Act is significantly less ambitious than in the Council recommendation under Article 126(7) of 2 December 2009 and it is not consistent with a reduction of the deficit to below the 3 % of GDP reference value by 2014/2015. |
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(12)

The Fiscal Responsibility Act (FRA), which was approved by Parliament on 10 February 2010, has established a statutory fiscal plan for the UK authorities. The FRA sets out a Fiscal Consolidation Plan (FCP) requiring that the government ‘halves public sector net borrowing as a share of GDP over four years from its forecast peak in 2009/2010. The Government is setting a target, in secondary legislation enabled by the Bill, for borrowing to be 5,5 per cent of GDP or less in 2013/2014’. The FCP also requires the government to: ‘reduce borrowing as a share of GDP in each and every year from 2009/2010 to 2015/2016, and ensure that public sector net debt is falling as a share of GDP in 2015/2016’. More specific spending control is exercised through a system of multi-year ‘spending reviews’, setting out overall spending envelopes and department-by-department limits for predictable expenditure (‘departmental expenditure limits’). However, public spending has not always been sufficiently contained, with total expenditure outturns between 2002/2003 and 2008/2009 on average exceeding the original ceilings set out in the spending reviews. The Fiscal Responsibility Act also requires the government ‘to provide an explanation (to Parliament) if the targets are missed’. To reduce the risk of missing the targets, a strengthening of the mechanism to assess their realism and a contingency plan — to be implemented if the underlying assumptions and macroeconomic forecasts prove inaccurate — would be useful.

Overall, while the FRA is a step in the right direction, the consolidation plan set out in the Act is significantly less ambitious than in the Council recommendation under Article 126(7) of 2 December 2009 and it is not consistent with a reduction of the deficit to below the 3 % of GDP reference value by 2014/2015.

| (13) | The increase in the government expenditure ratio since 2000 and more sharply in recent years underlines the need to ensure efficiency and cost effectiveness of public spending in the UK. During the three-year period covered by the 2007 Comprehensive Spending Review (CSR) (i.e. between 2008/2009 and 2010/2011), the UK government has committed itself to achieving further value-for-money savings of an additional 2,5 % of GDP. Around one-fifth of the latter represent savings the government plans to deliver over the 2007 CSR period, following the findings of its one-year long Operational Efficiency Programme (OEP), which examined operational spending in the public sector and revealed scope for annual efficiency savings of 1 % of GDP by 2013/2014 compared to 2007/2008. Measuring the success of these ambitious and well-conceived efficiency initiatives will be an important step in demonstrating that they indeed enhance the quality of public finances, as well as limiting the scale of public spending. In that respect, the announced plans for the National Audit Office to evaluate the 2007 CSR savings should be welcomed. Furthermore, the strong focus under the Public Value Programme on achieving efficiency savings in the public health sector of around 0,5 % of GDP per year by 2012/2013 appears particularly justified, given that, since 2000, spending on the UK National Health Service has increased sharply and productivity has fallen, notwithstanding improvements in health outcomes. |
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(13)

The increase in the government expenditure ratio since 2000 and more sharply in recent years underlines the need to ensure efficiency and cost effectiveness of public spending in the UK. During the three-year period covered by the 2007 Comprehensive Spending Review (CSR) (i.e. between 2008/2009 and 2010/2011), the UK government has committed itself to achieving further value-for-money savings of an additional 2,5 % of GDP. Around one-fifth of the latter represent savings the government plans to deliver over the 2007 CSR period, following the findings of its one-year long Operational Efficiency Programme (OEP), which examined operational spending in the public sector and revealed scope for annual efficiency savings of 1 % of GDP by 2013/2014 compared to 2007/2008. Measuring the success of these ambitious and well-conceived efficiency initiatives will be an important step in demonstrating that they indeed enhance the quality of public finances, as well as limiting the scale of public spending. In that respect, the announced plans for the National Audit Office to evaluate the 2007 CSR savings should be welcomed. Furthermore, the strong focus under the Public Value Programme on achieving efficiency savings in the public health sector of around 0,5 % of GDP per year by 2012/2013 appears particularly justified, given that, since 2000, spending on the UK National Health Service has increased sharply and productivity has fallen, notwithstanding improvements in health outcomes.

| (14) | Overall, in 2010/2011 the budgetary strategy set out in the programme is broadly consistent with the Council recommendations under Article 126(7), particularly the starting of consolidation in that year. However, from 2011/2012 onwards, the budgetary strategy is not consistent with the Council recommendations under Article 126(7). In particular, even taken at face value the government deficit in 2014/2015 — the deadline set in the December 2009 recommendation for the UK to correct its excessive deficit situation — is projected clearly above the 3 % of GDP reference value (4,7 % of GDP) and is furthermore subject to downside risks mentioned above. Moreover, the measures announced, subsequent to the Council recommendation, in the 2009 Pre-Budget Report of 9 December 2009, implied over the period between 2010/2011 and 2012/2013 a small fiscal loosening relative to the fiscal plans in the 2009 Budget of April 2009, which is inconsistent with the Council’s recommendation to ‘avoid(ing) further measures contributing to the deterioration of public finances’. The annual average improvement in the structural deficit, as recalculated by the Commission services using the commonly-agreed methodology, between 2010/2011 and 2014/2015 is estimated at 1,0 % of GDP, 0,75 pp., less than recommended by the Council in December 2009. Given debt projections presented in the programme and the risks mentioned above, the budgetary strategy may not be sufficient to bring the debt-to-GDP ratio back on a downward path. |
| --- | --- |

(14)

Overall, in 2010/2011 the budgetary strategy set out in the programme is broadly consistent with the Council recommendations under Article 126(7), particularly the starting of consolidation in that year. However, from 2011/2012 onwards, the budgetary strategy is not consistent with the Council recommendations under Article 126(7). In particular, even taken at face value the government deficit in 2014/2015 — the deadline set in the December 2009 recommendation for the UK to correct its excessive deficit situation — is projected clearly above the 3 % of GDP reference value (4,7 % of GDP) and is furthermore subject to downside risks mentioned above. Moreover, the measures announced, subsequent to the Council recommendation, in the 2009 Pre-Budget Report of 9 December 2009, implied over the period between 2010/2011 and 2012/2013 a small fiscal loosening relative to the fiscal plans in the 2009 Budget of April 2009, which is inconsistent with the Council’s recommendation to ‘avoid(ing) further measures contributing to the deterioration of public finances’. The annual average improvement in the structural deficit, as recalculated by the Commission services using the commonly-agreed methodology, between 2010/2011 and 2014/2015 is estimated at 1,0 % of GDP, 0,75 pp., less than recommended by the Council in December 2009. Given debt projections presented in the programme and the risks mentioned above, the budgetary strategy may not be sufficient to bring the debt-to-GDP ratio back on a downward path.

| (15) | As regards the data requirements specified in the code of conduct for stability and convergence programmes, the programme has some significant gaps in the provision of required and optional data (5). In its recommendations under Article 126(7) of 2 December 2009 with a view to bringing the excessive deficit situation to an end, the Council also invited the United Kingdom to report on progress made in the implementation of the fiscal consolidation strategy to ensure the correction of the excessive deficit in a separate chapter in the updates of the convergence programme. The United Kingdom did not fully comply with this recommendation, although the information was included in the programme. |
| --- | --- |

(15)

As regards the data requirements specified in the code of conduct for stability and convergence programmes, the programme has some significant gaps in the provision of required and optional data (5). In its recommendations under Article 126(7) of 2 December 2009 with a view to bringing the excessive deficit situation to an end, the Council also invited the United Kingdom to report on progress made in the implementation of the fiscal consolidation strategy to ensure the correction of the excessive deficit in a separate chapter in the updates of the convergence programme. The United Kingdom did not fully comply with this recommendation, although the information was included in the programme.

The overall conclusion is that the fiscal strategy in the convergence programme is not sufficiently ambitious and needs to be significantly reinforced to be consistent with the Council recommendations under Article 126(7) TFEU of 2 December 2009. The combination of the operation of automatic stabilisers, falls in asset prices and the fiscal stimulus has provoked a major deterioration in UK public finances. However, the position of the public finances was further weakened by the fact that UK deficits were at risk of breaching the 3 % of GDP reference value already in the period leading up to the crisis. A restrictive fiscal policy in 2010/2011 is appropriate. A credible timeframe for restoring public finances to a sustainable position, as defined in the Stability and Growth Pact, requires substantial additional fiscal tightening measures beyond those currently planned. With the greater part of the projected reduction in the deficit in the medium term driven by the tight overall spending envelope between 2011/2012 and 2014/2015, the absence of detailed departmental spending limits to back up those expenditure targets is a source of uncertainty. The achievement of the consolidation forecast by the UK authorities is further clouded by the risk that the macroeconomic context could be less favourable than envisaged by the authorities, as well as the uncertainties relating to the banking sector loans and investments insured by government. Taking into account the negative risks to the UK fiscal projections, a more ambitious consolidation plan for the near and medium-term is required. Achieving primary surpluses in the medium term would also contribute to reducing the risks to the sustainability of public finances which were assessed in the Commission 2009 Sustainability Report as high in the United Kingdom.

In view of the above assessment and also in the light of the recommendation under Article 126(7) TFEU of 2 December 2009, the United Kingdom is invited to:

| (i) | avoid any further measures contributing to the deterioration of public finances in 2010/2011 and in the event of weaker economic growth than foreseen in the programme contain the government deficit in 2010/2011 to at most that forecast in the January 2010 programme in case risks related to the fact that the macroeconomic scenario of the programme is more favourable than the scenario underpinning the Article 126(7) recommendation materialise; |
| --- | --- |

(i)

avoid any further measures contributing to the deterioration of public finances in 2010/2011 and in the event of weaker economic growth than foreseen in the programme contain the government deficit in 2010/2011 to at most that forecast in the January 2010 programme in case risks related to the fact that the macroeconomic scenario of the programme is more favourable than the scenario underpinning the Article 126(7) recommendation materialise;

| (ii) | target a more ambitious reduction of the government deficit to less than the 3 % of GDP Treaty reference value by 2014/2015 at the latest, including by strengthening the planned pace of fiscal effort from 2011/2012 onwards in line with the Council recommendation under Article 126(7), and seize any further opportunities, including from better-than-expected economic and market conditions, to accelerate the reduction of the gross debt ratio towards the 60 % of GDP reference value, thereby also improving the long-term sustainability of public finances; |
| --- | --- |

(ii)

target a more ambitious reduction of the government deficit to less than the 3 % of GDP Treaty reference value by 2014/2015 at the latest, including by strengthening the planned pace of fiscal effort from 2011/2012 onwards in line with the Council recommendation under Article 126(7), and seize any further opportunities, including from better-than-expected economic and market conditions, to accelerate the reduction of the gross debt ratio towards the 60 % of GDP reference value, thereby also improving the long-term sustainability of public finances;

| (iii) | publish in 2010 the detailed departmental spending limits underlying the overall expenditure projections for at least the three-year period beyond 2010/2011; |
| --- | --- |

(iii)

publish in 2010 the detailed departmental spending limits underlying the overall expenditure projections for at least the three-year period beyond 2010/2011;

| (iv) | implement the expenditure efficiency savings identified in the Operational Efficiency Programme (OEP) and in other value for money initiatives. |
| --- | --- |

(iv)

implement the expenditure efficiency savings identified in the Operational Efficiency Programme (OEP) and in other value for money initiatives.

The United Kingdom is also invited to improve compliance with the data requirements of the code of conduct.

The United Kingdom is also invited to submit in time for the assessment of the effective action under the Excessive Deficit Procedure an addendum to the programme to report on progress made in the implementation of the Council recommendation under Article 126(7) of 2 December 2009 and to outline in some detail the consolidation strategy that will be necessary to progress towards the correction of the excessive deficit. The Council reiterates its invitation that all subsequent updates should also provide a chapter with this information as long as a Member State remains subject to an excessive deficit procedure.

Overview of key macroeconomic and budgetary projections

| | 2008/2009 | 2009/2010 | 2010/2011 | 2011/2012 | 2012/2013 | 2013/2014 | 2014/2015 |
| --- | --- | --- | --- | --- | --- | --- | --- |
| Real GDP
  (% change) | CP Jan 2010 | –1,3 | –3,5 | 2,0 | 3,3 | 3,3 | 3,3 | 3,3 |
| COM Nov 2009 | 0,6 | –4,6 | 0,9 | 1,9 | n.a. | n.a. | n.a. |
| CP Dec 2008 | –0,3 | –0,5 | 2,0 | 3,0 | 3,0 | 3,0 | n.a. |
| HICP inflation
  (%) | CP Jan 2010 | 3,8 | 2,3 | 2,0 | 1,5 | 1,8 | 2,0 | 2,0 |
| COM Nov 2009 | 3,6 | 2,0 | 1,4 | 1,6 | n.a. | n.a. | n.a. |
| CP Dec 2008 | 3,8 | 1,0 | 2,0 | 2,0 | 2,0 | 2,0 | n.a. |
| Output gap (6)

  (% of potential GDP) | CP Jan 2010 | 0,0 | –4,6 | –4,4 | –2,8 | –1,5 | –0,4 | 0,5 |
| COM Nov 2009 (7) | 0,4 | –3,7 | –3,5 | –2,7 | n.a. | n.a. | n.a. |
| CP Dec 2008 | –0,5 | –2,4 | –2,1 | –1,2 | –0,4 | 0,2 | n.a. |
| Net lending/borrowing vis-à-vis the rest of the world
  (% of GDP) (8) | CP Jan 2010 | n.a. | n.a. | n.a. | n.a. | n.a. | n.a. | n.a. |
| COM Nov 2009 | –1,4 | –2,2 | –1,4 | –0,7 | n.a. | n.a. | n.a. |
| CP Dec 2008 | n.a. | n.a. | n.a. | n.a. | n.a. | n.a. | n.a. |
| General government revenue
  (% of GDP) | CP Jan 2010
   (9) | 36,6 | 34,8 | 35,4 | 36,7 | 37,1 | 37,2 | 37,1 |
| COM Nov 2009 | 41,9 | 38,4 | 39,2 | 39,8 | n.a. | n.a. | n.a. |
| CP Dec 2008 | 36,7 | 35,5 | 36,6 | 37,3 | 37,7 | 38,0 | n.a. |
| General government expenditure
  (% of GDP) | CP Jan 2010
   (9) | 43,4 | 47,4 | 47,4 | 45,8 | 44,2 | 42,7 | 41,5 |
| COM Nov 2009 | 49,0 | 51,2 | 51,5 | 50,3 | n.a. | n.a. | n.a. |
| CP Dec 2008 | 42,2 | 43,7 | 43,7 | 42,9 | 42,1 | 41,4 | n.a. |
| General government balance
  (% of GDP) | CP Jan 2010 | –6,9 | –12,7 | –12,1 | –9,2 | –7,4 | –5,6 | –4,7 |
| COM Nov 2009 | –6,9 | –13,0 | –12,5 | –10,7 | n.a. | n.a. | n.a. |
| CP Dec 2008 | –5,5 | –8,2 | –7,1 | –5,6 | –4,4 | –3,4 | n.a. |
| Primary balance
  (% of GDP) | CP Jan 2010 | –4,7 | –10,5 | –9,1 | –5,7 | –3,7 | –1,8 | –0,9 |
| COM Nov 2009 | –4,8 | –11,0 | –9,6 | –7,5 | n.a. | n.a. | n.a. |
| CP Dec 2008 | –3,4 | –6,4 | –4,5 | –2,6 | –1,4 | –0,3 | n.a. |
| Cyclically-adjusted balance (6)

  (% of GDP) | CP Jan 2010 | –6,9 | –10,8 | –10,3 | –8,0 | –6,8 | –5,5 | –4,9 |
| COM Nov 2009 | –7,1 | –11,5 | –11,0 | –9,6 | n.a. | n.a. | n.a. |
| CP Dec 2008 | –5,3 | –7,2 | –6,2 | –5,1 | –4,2 | –3,5 | n.a. |
| Structural balance (10)

  (% of GDP) | CP Jan 2010 | –6,2 | –10,5 | –10,3 | –8,0 | –6,8 | –5,5 | –4,9 |
| COM Nov 2009 | –6,3 | –11,4 | –11,0 | –9,6 | n.a. | n.a. | n.a. |
| CP Dec 2008 | –5,3 | –7,2 | –6,2 | –5,1 | –4,2 | –3,5 | n.a. |
| Government gross debt
  (% of GDP) | CP Jan 2010 | 55,5 | 72,9 | 82,1 | 88,0 | 90,9 | 91,6 | 91,2 |
| COM Nov 2009 | 55,5 | 71,7 | 81,9 | 89,0 | n.a. | n.a. | n.a. |
| CP Dec 2008 | 52,9 | 60,5 | 65,1 | 67,5 | 68,6 | 68,5 | n.a. |
| Source:


  Convergence programme (CP); Commission services’ autumn 2009 forecasts (COM); Commission services’ calculations. |

2008/2009

2009/2010

2010/2011

2011/2012

2012/2013

2013/2014

2014/2015

Real GDP

(% change)

CP Jan 2010

–1,3

–3,5

2,0

3,3

3,3

3,3

3,3

COM Nov 2009

0,6

–4,6

0,9

1,9

n.a.

n.a.

n.a.

CP Dec 2008

–0,3

–0,5

2,0

3,0

3,0

3,0

n.a.

HICP inflation

(%)

CP Jan 2010

3,8

2,3

2,0

1,5

1,8

2,0

2,0

COM Nov 2009

3,6

2,0

1,4

1,6

n.a.

n.a.

n.a.

CP Dec 2008

3,8

1,0

2,0

2,0

2,0

2,0

n.a.

Output gap (6)

(% of potential GDP)

CP Jan 2010

0,0

–4,6

–4,4

–2,8

–1,5

–0,4

0,5

COM Nov 2009 (7)

0,4

–3,7

–3,5

–2,7

n.a.

n.a.

n.a.

CP Dec 2008

–0,5

–2,4

–2,1

–1,2

–0,4

0,2

n.a.

Net lending/borrowing vis-à-vis the rest of the world

(% of GDP) (8)

CP Jan 2010

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

COM Nov 2009

–1,4

–2,2

–1,4

–0,7

n.a.

n.a.

n.a.

CP Dec 2008

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

General government revenue

(% of GDP)

CP Jan 2010
   (9)

36,6

34,8

35,4

36,7

37,1

37,2

37,1

COM Nov 2009

41,9

38,4

39,2

39,8

n.a.

n.a.

n.a.

CP Dec 2008

36,7

35,5

36,6

37,3

37,7

38,0

n.a.

General government expenditure

(% of GDP)

CP Jan 2010
   (9)

43,4

47,4

47,4

45,8

44,2

42,7

41,5

COM Nov 2009

49,0

51,2

51,5

50,3

n.a.

n.a.

n.a.

CP Dec 2008

42,2

43,7

43,7

42,9

42,1

41,4

n.a.

General government balance

(% of GDP)

CP Jan 2010

–6,9

–12,7

–12,1

–9,2

–7,4

–5,6

–4,7

COM Nov 2009

–6,9

–13,0

–12,5

–10,7

n.a.

n.a.

n.a.

CP Dec 2008

–5,5

–8,2

–7,1

–5,6

–4,4

–3,4

n.a.

Primary balance

(% of GDP)

CP Jan 2010

–4,7

–10,5

–9,1

–5,7

–3,7

–1,8

–0,9

COM Nov 2009

–4,8

–11,0

–9,6

–7,5

n.a.

n.a.

n.a.

CP Dec 2008

–3,4

–6,4

–4,5

–2,6

–1,4

–0,3

n.a.

Cyclically-adjusted balance (6)

(% of GDP)

CP Jan 2010

–6,9

–10,8

–10,3

–8,0

–6,8

–5,5

–4,9

COM Nov 2009

–7,1

–11,5

–11,0

–9,6

n.a.

n.a.

n.a.

CP Dec 2008

–5,3

–7,2

–6,2

–5,1

–4,2

–3,5

n.a.

Structural balance (10)

(% of GDP)

CP Jan 2010

–6,2

–10,5

–10,3

–8,0

–6,8

–5,5

–4,9

COM Nov 2009

–6,3

–11,4

–11,0

–9,6

n.a.

n.a.

n.a.

CP Dec 2008

–5,3

–7,2

–6,2

–5,1

–4,2

–3,5

n.a.

Government gross debt

(% of GDP)

CP Jan 2010

55,5

72,9

82,1

88,0

90,9

91,6

91,2

COM Nov 2009

55,5

71,7

81,9

89,0

n.a.

n.a.

n.a.

CP Dec 2008

52,9

60,5

65,1

67,5

68,6

68,5

n.a.

Source:

Convergence programme (CP); Commission services’ autumn 2009 forecasts (COM); Commission services’ calculations.

---

(1)  OJ L 209, 2.8.1997, p. 1. The documents referred to in this text can be found at the following website: http://ec.europa.eu/economy_finance/sgp/index_en.htm

(2)  The assessment notably takes into account the Commission services’ autumn 2009 forecast, but also other information that has become available since then.

(3)  The country-specific MTOs should take into account three components: (i) the debt-stabilising balance for a debt ratio equal to the (60 % of GDP) reference value (dependent on long-term potential growth), implying room for budgetary manoeuvre for Member States with relatively low debt; (ii) a supplementary debt-reduction effort for Member States with a debt ratio in excess of the (60 % of GDP) reference value, implying rapid progress towards it; and (iii) a fraction of the adjustment needed to cover the present value of the future increase in age-related government expenditure.

(4)  In the Council conclusions from 10 November 2009 on sustainability of public finances ‘the Council calls on Member States to focus attention to sustainability-oriented strategies in their upcoming stability and convergence programmes’ and further ‘invites the Commission, together with the Economic Policy Committee and the Economic and Financial Committee, to further develop methodologies for assessing the long-term sustainability of public finances in time for the next Sustainability report’, which is foreseen in 2012.

(5)  In particular, the lack of labour market data has significantly complicated the recalculation of output gaps according to the commonly agreed methodology.

(6)  Output gaps and cyclically-adjusted balances from the programmes as recalculated by Commission services on the basis of the information in the programmes.

(7)  Based on estimated potential growth of 1,5 %, 0,8 %, 0,8 % and 1,1 % respectively in the period 2008-2011.

(8)  Data for calendar years.

(9)  Data for revenue and expenditure are not provided in the UK programme on a harmonised ESA95 basis for the general government sector. The data in the table are based on Table 2,7 of the supplementary material of the 2009 Pre-Budget Report. For the years between 2011/2012 and 2014/2015, general government revenue and expenditure figures are inferred from projections for the public sector.

(10)  Cyclically-adjusted balance excluding one-off and other temporary measures. One-off and other temporary measures are estimated at 0,7 % of GDP in 2008/2009 and 0,3 % of GDP in 2009/2010 (deficit-increasing) on the basis of information in the most recent programme.

Source:

Convergence programme (CP); Commission services’ autumn 2009 forecasts (COM); Commission services’ calculations.

---

IV Notices

NOTICES FROM EUROPEAN UNION INSTITUTIONS, BODIES, OFFICES AND AGENCIES

European Commission

| 4.6.2010 | EN | Official Journal of the European Union | C 146/24 |
| --- | --- | --- | --- |

4.6.2010

EN

Official Journal of the European Union

C 146/24

---

Euro exchange rates (1)

3 June 2010

2010/C 146/05

1 euro =

| | Currency | Exchange rate |
| --- | --- | --- |
| USD | US dollar | 1,2268 |
| JPY | Japanese yen | 113,74 |
| DKK | Danish krone | 7,4413 |
| GBP | Pound sterling | 0,83570 |
| SEK | Swedish krona | 9,5210 |
| CHF | Swiss franc | 1,4149 |
| ISK | Iceland króna | |
| NOK | Norwegian krone | 7,8660 |
| BGN | Bulgarian lev | 1,9558 |
| CZK | Czech koruna | 25,750 |
| EEK | Estonian kroon | 15,6466 |
| HUF | Hungarian forint | 275,20 |
| LTL | Lithuanian litas | 3,4528 |
| LVL | Latvian lats | 0,7085 |
| PLN | Polish zloty | 4,0705 |
| RON | Romanian leu | 4,1900 |
| TRY | Turkish lira | 1,9317 |
| AUD | Australian dollar | 1,4469 |
| CAD | Canadian dollar | 1,2734 |
| HKD | Hong Kong dollar | 9,5586 |
| NZD | New Zealand dollar | 1,7896 |
| SGD | Singapore dollar | 1,7223 |
| KRW | South Korean won | 1 469,46 |
| ZAR | South African rand | 9,3434 |
| CNY | Chinese yuan renminbi | 8,3768 |
| HRK | Croatian kuna | 7,2620 |
| IDR | Indonesian rupiah | 11 276,70 |
| MYR | Malaysian ringgit | 4,0061 |
| PHP | Philippine peso | 56,846 |
| RUB | Russian rouble | 37,9828 |
| THB | Thai baht | 39,969 |
| BRL | Brazilian real | 2,2262 |
| MXN | Mexican peso | 15,6245 |
| INR | Indian rupee | 57,2550 |

Currency

Exchange rate

USD

US dollar

1,2268

JPY

Japanese yen

113,74

DKK

Danish krone

7,4413

GBP

Pound sterling

0,83570

SEK

Swedish krona

9,5210

CHF

Swiss franc

1,4149

ISK

Iceland króna

NOK

Norwegian krone

7,8660

BGN

Bulgarian lev

1,9558

CZK

Czech koruna

25,750

EEK

Estonian kroon

15,6466

HUF

Hungarian forint

275,20

LTL

Lithuanian litas

3,4528

LVL

Latvian lats

0,7085

PLN

Polish zloty

4,0705

RON

Romanian leu

4,1900

TRY

Turkish lira

1,9317

AUD

Australian dollar

1,4469

CAD

Canadian dollar

1,2734

HKD

Hong Kong dollar

9,5586

NZD

New Zealand dollar

1,7896

SGD

Singapore dollar

1,7223

KRW

South Korean won

1 469,46

ZAR

South African rand

9,3434

CNY

Chinese yuan renminbi

8,3768

HRK

Croatian kuna

7,2620

IDR

Indonesian rupiah

11 276,70

MYR

Malaysian ringgit

4,0061

PHP

Philippine peso

56,846

RUB

Russian rouble

37,9828

THB

Thai baht

39,969

BRL

Brazilian real

2,2262

MXN

Mexican peso

15,6245

INR

Indian rupee

57,2550

---

(1)  Source: reference exchange rate published by the ECB.

---

| 4.6.2010 | EN | Official Journal of the European Union | C 146/25 |
| --- | --- | --- | --- |

4.6.2010

EN

Official Journal of the European Union

C 146/25

---

DECISION TO CLOSE THE FORMAL INVESTIGATION PROCEDURE AFTER WITHDRAWAL BY MEMBER STATE

State aid — Germany

(Articles 107 to 109 of the Treaty on the Functioning of the European Union)

Commission notice pursuant to Article 108(2) of the TFEU — Withdrawal

State aid C 28/08 (ex N 345/06) — SME-bonus in favour of Magdeburger Artolith GmbH (M.A.L.)

(Text with EEA relevance)

2010/C 146/06

The Commission has decided to close the formal investigation procedure (1) under Article 108(2) of the TFEU, initiated on 17 June 2008 in respect of the measure referred to above, recording that Germany has withdrawn the notified measure on 25 February 2010 and will not pursue this aid project further.

---

(1)  OJ C 268, 23.10.2008, p. 23.

---

V Announcements

PROCEDURES RELATING TO THE IMPLEMENTATION OF COMPETITION POLICY

European Commission

| 4.6.2010 | EN | Official Journal of the European Union | C 146/26 |
| --- | --- | --- | --- |

4.6.2010

EN

Official Journal of the European Union

C 146/26

---

Prior notification of a concentration

(Case COMP/M.5864 — Avnet/Bell Micro)

(Text with EEA relevance)

2010/C 146/07

| 1. | On 28 May 2010, the Commission received a notification of a proposed concentration pursuant to Article 4 of Council Regulation (EC) No 139/2004 (1) by which the undertaking Avnet Inc. (‘Avnet’, United States of America) acquires within the meaning of Article 3(1)(b) of the Merger Regulation control of the whole of the undertaking Bell Micro Products Inc. (‘Bell Micro’, United States of America) by way of purchase of shares. |
| --- | --- |

1.

On 28 May 2010, the Commission received a notification of a proposed concentration pursuant to Article 4 of Council Regulation (EC) No 139/2004 (1) by which the undertaking Avnet Inc. (‘Avnet’, United States of America) acquires within the meaning of Article 3(1)(b) of the Merger Regulation control of the whole of the undertaking Bell Micro Products Inc. (‘Bell Micro’, United States of America) by way of purchase of shares.

| 2. | The business activities of the undertakings concerned are:






  — | for Avnet: distribution of electronic components, computer products and technology services, |
| --- | --- | --- |

2.

The business activities of the undertakings concerned are:

—

for Avnet: distribution of electronic components, computer products and technology services,

| — | for Bell Micro: distribution of data storage products and systems, computer products, peripherals and software, and added-value services. |
| --- | --- |

—

for Bell Micro: distribution of data storage products and systems, computer products, peripherals and software, and added-value services.

| 3. | On preliminary examination, the Commission finds that the notified transaction could fall within the scope the EC Merger Regulation. However, the final decision on this point is reserved. |
| --- | --- |

3.

On preliminary examination, the Commission finds that the notified transaction could fall within the scope the EC Merger Regulation. However, the final decision on this point is reserved.

| 4. | The Commission invites interested third parties to submit their possible observations on the proposed operation to the Commission.
  Observations must reach the Commission not later than 10 days following the date of this publication. Observations can be sent to the Commission by fax (+32 22964301), by e-mail to COMP-MERGER-REGISTRY@ec.europa.eu or by post, under reference number COMP/M.5864 — Avnet/Bell Micro, to the following address:





  European Commission |
| --- | --- |
| Directorate-General for Competition |
| Merger Registry |
| J-70 |
| 1049 Bruxelles/Brussel |
| BELGIQUE/BELGIË |

4.

The Commission invites interested third parties to submit their possible observations on the proposed operation to the Commission.

Observations must reach the Commission not later than 10 days following the date of this publication. Observations can be sent to the Commission by fax (+32 22964301), by e-mail to COMP-MERGER-REGISTRY@ec.europa.eu or by post, under reference number COMP/M.5864 — Avnet/Bell Micro, to the following address:

European Commission

Directorate-General for Competition

Merger Registry

J-70

1049 Bruxelles/Brussel

BELGIQUE/BELGIË

---

(1)  OJ L 24, 29.1.2004, p. 1 (the ‘EC Merger Regulation’).

---

| 4.6.2010 | EN | Official Journal of the European Union | C 146/27 |
| --- | --- | --- | --- |

4.6.2010

EN

Official Journal of the European Union

C 146/27

---

Prior notification of a concentration

(Case COMP/M.5814 — CVC/Univar Europe/Eurochem)

(Text with EEA relevance)

2010/C 146/08

| 1. | On 28 May 2010, the Commission received a notification of a proposed concentration pursuant to Article 4 of Council Regulation (EC) No 139/2004 (1) by which the undertaking Univar Europe Holdings B.V. (‘Univar’, the Netherlands) ultimately controlled by funds advised and managed by CVC Capital Partners SICAV-FIS S.A. (‘CVC’, Luxembourg) acquires within the meaning of Article 3(1)(b) of the Merger Regulation sole control of the undertaking Eurochem Holding B.V. (‘Eurochem’, the Netherlands), by way of purchase of shares. |
| --- | --- |

1.

On 28 May 2010, the Commission received a notification of a proposed concentration pursuant to Article 4 of Council Regulation (EC) No 139/2004 (1) by which the undertaking Univar Europe Holdings B.V. (‘Univar’, the Netherlands) ultimately controlled by funds advised and managed by CVC Capital Partners SICAV-FIS S.A. (‘CVC’, Luxembourg) acquires within the meaning of Article 3(1)(b) of the Merger Regulation sole control of the undertaking Eurochem Holding B.V. (‘Eurochem’, the Netherlands), by way of purchase of shares.

| 2. | The business activities of the undertakings concerned are:






  — | for CVC: providing investment advice to and/or managing investments on behalf of investment funds, |
| --- | --- | --- |

2.

The business activities of the undertakings concerned are:

—

for CVC: providing investment advice to and/or managing investments on behalf of investment funds,

| — | for Univar: distribution of chemical products, |
| --- | --- |

—

for Univar: distribution of chemical products,

| — | for Eurochem: distribution of chemical products. |
| --- | --- |

—

for Eurochem: distribution of chemical products.

| 3. | On preliminary examination, the Commission finds that the notified transaction could fall within the scope the EC Merger Regulation. However, the final decision on this point is reserved. |
| --- | --- |

3.

On preliminary examination, the Commission finds that the notified transaction could fall within the scope the EC Merger Regulation. However, the final decision on this point is reserved.

| 4. | The Commission invites interested third parties to submit their possible observations on the proposed operation to the Commission.
  Observations must reach the Commission not later than 10 days following the date of this publication. Observations can be sent to the Commission by fax (+32 22964301), by e-mail to COMP-MERGER-REGISTRY@ec.europa.eu or by post, under reference number COMP/M.5814 — CVC/Univar Europe/Eurochem, to the following address:





  European Commission |
| --- | --- |
| Directorate-General for Competition |
| Merger Registry |
| J-70 |
| 1049 Bruxelles/Brussel |
| BELGIQUE/BELGIË |

4.

The Commission invites interested third parties to submit their possible observations on the proposed operation to the Commission.

Observations must reach the Commission not later than 10 days following the date of this publication. Observations can be sent to the Commission by fax (+32 22964301), by e-mail to COMP-MERGER-REGISTRY@ec.europa.eu or by post, under reference number COMP/M.5814 — CVC/Univar Europe/Eurochem, to the following address:

European Commission

Directorate-General for Competition

Merger Registry

J-70

1049 Bruxelles/Brussel

BELGIQUE/BELGIË

---

(1)  OJ L 24, 29.1.2004, p. 1 (the ‘EC Merger Regulation’).

---

| 4.6.2010 | EN | Official Journal of the European Union | C 146/28 |
| --- | --- | --- | --- |

4.6.2010

EN

Official Journal of the European Union

C 146/28

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Prior notification of a concentration

(Case COMP/M.5854 — Total Group/HIPS & GPPS business of Polimeri)

(Text with EEA relevance)

2010/C 146/09

| 1. | On 26 May 2010, the Commission received a notification of a proposed concentration pursuant to Article 4 and following a referral pursuant to Article 4(5) of Council Regulation (EC) No 139/2004 (1) by which the undertaking Total Petrochemicals Feluy S.A. (‘TPF’, Belgium) belonging to the Total Group (‘Total’, France) acquires within the meaning of Article 3(1)(b) of the Merger Regulation control of part of the undertaking Polimeri Europa Benelux S.A. (‘Polimeri’, Belgium) consisting of Polimeri's polystyrene production lines (and related HIPS and GPPS business) at Feluy, Belgium (‘the Target’), by way of purchase of assets. |
| --- | --- |

1.

On 26 May 2010, the Commission received a notification of a proposed concentration pursuant to Article 4 and following a referral pursuant to Article 4(5) of Council Regulation (EC) No 139/2004 (1) by which the undertaking Total Petrochemicals Feluy S.A. (‘TPF’, Belgium) belonging to the Total Group (‘Total’, France) acquires within the meaning of Article 3(1)(b) of the Merger Regulation control of part of the undertaking Polimeri Europa Benelux S.A. (‘Polimeri’, Belgium) consisting of Polimeri's polystyrene production lines (and related HIPS and GPPS business) at Feluy, Belgium (‘the Target’), by way of purchase of assets.

| 2. | The business activities of the undertakings concerned are:






  — | for TPF: manufacture of commodity polymers (polyethylene, polypropylene, polystyrene), |
| --- | --- | --- |

2.

The business activities of the undertakings concerned are:

—

for TPF: manufacture of commodity polymers (polyethylene, polypropylene, polystyrene),

| — | for the Target: manufacture of polystyrene. |
| --- | --- |

—

for the Target: manufacture of polystyrene.

| 3. | On preliminary examination, the Commission finds that the notified transaction could fall within the scope the EC Merger Regulation. However, the final decision on this point is reserved. |
| --- | --- |

3.

On preliminary examination, the Commission finds that the notified transaction could fall within the scope the EC Merger Regulation. However, the final decision on this point is reserved.

| 4. | The Commission invites interested third parties to submit their possible observations on the proposed operation to the Commission.
  Observations must reach the Commission not later than 10 days following the date of this publication. Observations can be sent to the Commission by fax (+32 22964301), by e-mail to COMP-MERGER-REGISTRY@ec.europa.eu or by post, under reference number COMP/M.5854 — Total Group/HIPS & GPPS business of Polimeri, to the following address:





  European Commission |
| --- | --- |
| Directorate-General for Competition |
| Merger Registry |
| J-70 |
| 1049 Bruxelles/Brussel |
| BELGIQUE/BELGIË |

4.

The Commission invites interested third parties to submit their possible observations on the proposed operation to the Commission.

Observations must reach the Commission not later than 10 days following the date of this publication. Observations can be sent to the Commission by fax (+32 22964301), by e-mail to COMP-MERGER-REGISTRY@ec.europa.eu or by post, under reference number COMP/M.5854 — Total Group/HIPS & GPPS business of Polimeri, to the following address:

European Commission

Directorate-General for Competition

Merger Registry

J-70

1049 Bruxelles/Brussel

BELGIQUE/BELGIË

---

(1)  OJ L 24, 29.1.2004, p. 1 (the ‘EC Merger Regulation’).

---

| 4.6.2010 | EN | Official Journal of the European Union | C 146/29 |
| --- | --- | --- | --- |

4.6.2010

EN

Official Journal of the European Union

C 146/29

---

Prior notification of a concentration

(Case COMP/M.5871 — KKR/Triton/Ambea)

Candidate case for simplified procedure

(Text with EEA relevance)

2010/C 146/10

| 1. | On 26 May 2010, the Commission received a notification of a proposed concentration pursuant to Article 4 of Council Regulation (EC) No 139/2004 (1) by which the undertakings KKR & Co. L.P. (‘KKR’, USA) and Triton Managers III Limited and TFF III Limited (collectively, ‘Triton Fund III’, Jersey), belonging to the Triton investment funds group (‘Triton’, Jersey), acquire within the meaning of Article 3(1)(b) of the Merger Regulation joint control of the undertaking Ambea AB (‘Ambea’, Sweden) by way of purchase of shares. |
| --- | --- |

1.

On 26 May 2010, the Commission received a notification of a proposed concentration pursuant to Article 4 of Council Regulation (EC) No 139/2004 (1) by which the undertakings KKR & Co. L.P. (‘KKR’, USA) and Triton Managers III Limited and TFF III Limited (collectively, ‘Triton Fund III’, Jersey), belonging to the Triton investment funds group (‘Triton’, Jersey), acquire within the meaning of Article 3(1)(b) of the Merger Regulation joint control of the undertaking Ambea AB (‘Ambea’, Sweden) by way of purchase of shares.

| 2. | The business activities of the undertakings concerned are:






  — | for KKR: asset management services to public and private market investors, |
| --- | --- | --- |

2.

The business activities of the undertakings concerned are:

—

for KKR: asset management services to public and private market investors,

| — | for Triton: private equity investment fund, |
| --- | --- |

—

for Triton: private equity investment fund,

| — | for Ambea: provision of healthcare services and care services in Sweden, Finland and Norway. |
| --- | --- |

—

for Ambea: provision of healthcare services and care services in Sweden, Finland and Norway.

| 3. | On preliminary examination, the Commission finds that the notified transaction could fall within the scope of the EC Merger Regulation. However, the final decision on this point is reserved. Pursuant to the Commission Notice on a simplified procedure for treatment of certain concentrations under the EC Merger Regulation (2) it should be noted that this case is a candidate for treatment under the procedure set out in the Notice. |
| --- | --- |

3.

On preliminary examination, the Commission finds that the notified transaction could fall within the scope of the EC Merger Regulation. However, the final decision on this point is reserved. Pursuant to the Commission Notice on a simplified procedure for treatment of certain concentrations under the EC Merger Regulation (2) it should be noted that this case is a candidate for treatment under the procedure set out in the Notice.

| 4. | The Commission invites interested third parties to submit their possible observations on the proposed operation to the Commission.
  Observations must reach the Commission not later than 10 days following the date of this publication. Observations can be sent to the Commission by fax (+32 22964301), by email to COMP-MERGER-REGISTRY@ec.europa.eu or by post, under reference number COMP/M.5871 — KKR/Triton/Ambea, to the following address:





  European Commission |
| --- | --- |
| Directorate-General for Competition |
| Merger Registry |
| J-70 |
| 1049 Bruxelles/Brussel |
| BELGIQUE/BELGIË |

4.

The Commission invites interested third parties to submit their possible observations on the proposed operation to the Commission.

Observations must reach the Commission not later than 10 days following the date of this publication. Observations can be sent to the Commission by fax (+32 22964301), by email to COMP-MERGER-REGISTRY@ec.europa.eu or by post, under reference number COMP/M.5871 — KKR/Triton/Ambea, to the following address:

European Commission

Directorate-General for Competition

Merger Registry

J-70

1049 Bruxelles/Brussel

BELGIQUE/BELGIË

---

(1)  OJ L 24, 29.1.2004, p. 1 (the ‘EC Merger Regulation’).

(2)  OJ C 56, 5.3.2005, p. 32 (‘Notice on a simplified procedure’).

---

OTHER ACTS

European Commission

| 4.6.2010 | EN | Official Journal of the European Union | C 146/30 |
| --- | --- | --- | --- |

4.6.2010

EN

Official Journal of the European Union

C 146/30

---

INFORMATION NOTICE — PUBLIC CONSULTATION

Geographical indications from Ukraine

2010/C 146/11

In the framework of the ongoing negotiations for concluding a Free Trade Agreement with the Ukraine, the protection in the European Union, as geographical indications, of the names set out below and registered in the Ukraine under Law No 752-XIV on the Protection of Rights to Indication of Origin of Goods is under consideration.

The Commission invites any Member State or third country or any natural or legal persons having a legitimate interest, resident or established in a Member State or in a third country, to submit objections to such protection by lodging a duly substantiated statement.

Statements of objection must reach the Commission within two months of the date of this publication. Statements of objection should be sent to the following e-mail address: AGRI-B3-GI@ec.europa.eu

Statements of objection shall be examined only if they are received within the time limit set out above and if they show that the protection of the name proposed would:

| 1. | conflict with the name of a plant variety or an animal breed and as a result is likely to mislead the consumer as to the true origin of the product; |
| --- | --- |

1.

conflict with the name of a plant variety or an animal breed and as a result is likely to mislead the consumer as to the true origin of the product;

| 2. | be wholly or partially homonymous with that of a name already protected in the European Union under Council Regulation (EC) No 1234/2007 (1) establishing a common organisation of agricultural markets and on specific provisions for certain agricultural products (Single CMO Regulation into which has been integrated the common organisation of the market in wine) and Regulation (EC) No 110/2008 of the European Parliament and of the Council (2) on the definition, description, presentation, labelling and protection of geographical indications of spirit drinks; or contained in the agreements the Community has concluded with the one of the following countries:






  — | Republic of Albania (Council Decision 2006/580/EC of 12 June 2006 concerning the signing and conclusion of the Interim Agreement on trade and trade-related matters between the European Community, of the one part, and the Republic of Albania, of the other part (3) (Protocol 3 on reciprocal preferential concessions for certain wines, the reciprocal recognition, protection and control of wine, spirit drinks and aromatised wine names)), |
| --- | --- | --- |

2.

be wholly or partially homonymous with that of a name already protected in the European Union under Council Regulation (EC) No 1234/2007 (1) establishing a common organisation of agricultural markets and on specific provisions for certain agricultural products (Single CMO Regulation into which has been integrated the common organisation of the market in wine) and Regulation (EC) No 110/2008 of the European Parliament and of the Council (2) on the definition, description, presentation, labelling and protection of geographical indications of spirit drinks; or contained in the agreements the Community has concluded with the one of the following countries:

—

Republic of Albania (Council Decision 2006/580/EC of 12 June 2006 concerning the signing and conclusion of the Interim Agreement on trade and trade-related matters between the European Community, of the one part, and the Republic of Albania, of the other part (3) (Protocol 3 on reciprocal preferential concessions for certain wines, the reciprocal recognition, protection and control of wine, spirit drinks and aromatised wine names)),

| — | Australia (Council Decision 94/184/EC of 24 January 1994 concerning the conclusion of an Agreement between the European Community and Australia on trade in wine (4)), |
| --- | --- |

—

Australia (Council Decision 94/184/EC of 24 January 1994 concerning the conclusion of an Agreement between the European Community and Australia on trade in wine (4)),

| — | Bosnia and Herzegovina (Council Decision 2008/474/EC of 16 June 2008 on the conclusion of an Interim Agreement on trade and trade-related matters between the European Community, of the one part, and Bosnia and Herzegovina, of the other part (5) — Protocol 7), |
| --- | --- |

—

Bosnia and Herzegovina (Council Decision 2008/474/EC of 16 June 2008 on the conclusion of an Interim Agreement on trade and trade-related matters between the European Community, of the one part, and Bosnia and Herzegovina, of the other part (5) — Protocol 7),

| — | Canada (Council Decision 2004/91/EC of 30 July 2003 on the conclusion of the Agreement between the European Community and Canada on trade in wines and spirit drinks (6)), |
| --- | --- |

—

Canada (Council Decision 2004/91/EC of 30 July 2003 on the conclusion of the Agreement between the European Community and Canada on trade in wines and spirit drinks (6)),

| — | Republic of Chile (Council Decision 2002/979/EC of 18 November 2002 — on the signature and provisional application of certain provisions of an Agreement establishing an association between the European Community and its Member States, of the one part, and the Republic of Chile, of the other part (7)), |
| --- | --- |

—

Republic of Chile (Council Decision 2002/979/EC of 18 November 2002 — on the signature and provisional application of certain provisions of an Agreement establishing an association between the European Community and its Member States, of the one part, and the Republic of Chile, of the other part (7)),

| — | Croatia (Council Decision 2001/918/EC of 3 December 2001 on the conclusion of an Additional Protocol adjusting the trade aspects of the Stabilisation and Association Agreement between the European Community and their Member States, of the one part, and the Republic of Croatia, of the other part, to take account of the outcome of the negotiations between the parties on reciprocal preferential concessions for certain wines, the reciprocal recognition, protection and control of wine names and the reciprocal recognition, protection and control of designations for spirits and aromatised drinks (8)), |
| --- | --- |

—

Croatia (Council Decision 2001/918/EC of 3 December 2001 on the conclusion of an Additional Protocol adjusting the trade aspects of the Stabilisation and Association Agreement between the European Community and their Member States, of the one part, and the Republic of Croatia, of the other part, to take account of the outcome of the negotiations between the parties on reciprocal preferential concessions for certain wines, the reciprocal recognition, protection and control of wine names and the reciprocal recognition, protection and control of designations for spirits and aromatised drinks (8)),

| — | former Yugoslav Republic of Macedonia (Council Decision 2001/916/EC of 3 December 2001 on the conclusion of an Additional Protocol adjusting the trade aspects of the Stabilisation and Association Agreement between the European Community and the former Yugoslav Republic of Macedonia, to take account of the outcome of the negotiations between the parties on reciprocal preferential concessions for certain wines, the reciprocal recognition, protection and control of wine names and the reciprocal recognition, protection and control of designations for spirits and aromatised drinks (9)), |
| --- | --- |

—

former Yugoslav Republic of Macedonia (Council Decision 2001/916/EC of 3 December 2001 on the conclusion of an Additional Protocol adjusting the trade aspects of the Stabilisation and Association Agreement between the European Community and the former Yugoslav Republic of Macedonia, to take account of the outcome of the negotiations between the parties on reciprocal preferential concessions for certain wines, the reciprocal recognition, protection and control of wine names and the reciprocal recognition, protection and control of designations for spirits and aromatised drinks (9)),

| — | Mexico (Council Decision 97/361/EC of 27 May 1997 concerning the conclusion of an Agreement between the European Community and the United Mexican States on the mutual recognition and protection of designations for spirit drinks (10)), |
| --- | --- |

—

Mexico (Council Decision 97/361/EC of 27 May 1997 concerning the conclusion of an Agreement between the European Community and the United Mexican States on the mutual recognition and protection of designations for spirit drinks (10)),

| — | Montenegro (Council Decision 2007/855/EC of 15 October 2007 concerning the conclusion of the Interim Agreement on trade and trade-related matters between the European Community, of the one part, and the Republic of Montenegro, of the other part (11)), |
| --- | --- |

—

Montenegro (Council Decision 2007/855/EC of 15 October 2007 concerning the conclusion of the Interim Agreement on trade and trade-related matters between the European Community, of the one part, and the Republic of Montenegro, of the other part (11)),

| — | South Africa (Council Decision 2002/51/EC of 21 January 2002 concerning the Agreement between the European Community and the Republic of South Africa on trade in wine (12)) and Council Decision 2002/52/EC of 21 January 2002 concerning the Agreement between the European Community and the Republic of South Africa on trade in spirits (13)), |
| --- | --- |

—

South Africa (Council Decision 2002/51/EC of 21 January 2002 concerning the Agreement between the European Community and the Republic of South Africa on trade in wine (12)) and Council Decision 2002/52/EC of 21 January 2002 concerning the Agreement between the European Community and the Republic of South Africa on trade in spirits (13)),

| — | Switzerland (Council Decision 2002/309/EC, Euratom and of the Commission as regards the Agreement on Scientific and Technological Cooperation, of 4 April 2002 on the conclusion of seven Agreements with the Swiss Confederation (14), and in particular the Agreement between the European Community and the Swiss Federation on trade in agricultural products — Annex 7), |
| --- | --- |

—

Switzerland (Council Decision 2002/309/EC, Euratom and of the Commission as regards the Agreement on Scientific and Technological Cooperation, of 4 April 2002 on the conclusion of seven Agreements with the Swiss Confederation (14), and in particular the Agreement between the European Community and the Swiss Federation on trade in agricultural products — Annex 7),

| — | United States of America (Council Decision 2006/232/EC of 20 December 2005 on the conclusion of the Agreement between the European Community and the United States of America on trade in wine (15)). |
| --- | --- |

—

United States of America (Council Decision 2006/232/EC of 20 December 2005 on the conclusion of the Agreement between the European Community and the United States of America on trade in wine (15)).

| 3. | in the light of a trademark's reputation and renown and the length of time it has been used, be liable to mislead the consumer as to the true identity of the product; |
| --- | --- |

3.

in the light of a trademark's reputation and renown and the length of time it has been used, be liable to mislead the consumer as to the true identity of the product;

| 4. | jeopardise the existence of an entirely or partly identical name or of a trademark or the existence of products which have been legally on the market for at least five years preceding the date of the publication of this notice; |
| --- | --- |

4.

jeopardise the existence of an entirely or partly identical name or of a trademark or the existence of products which have been legally on the market for at least five years preceding the date of the publication of this notice;

| 5. | or if they can give details from which it can be concluded that the name for which protection is considered is generic. |
| --- | --- |

5.

or if they can give details from which it can be concluded that the name for which protection is considered is generic.

The criteria referred to above shall be evaluated in relation to the territory of the European Union, which in the case of intellectual property rights refers only to the territory or territories where the said rights are protected. The eventual protection of these names in the European Union is subject to the successful conclusion of these negotiations and subsequent legal act.

List of geographical indications for agricultural products and foodstuffs
   (16)

| Class of products | Name as registered in Ukraine | Transcription in Latin characters |
| --- | --- | --- |
| Wine | Сонячна Долина | Soniachna Dolyna
  (Soniachna Dolina) |
| Wine | Новий Свiт | Novyj Svit
  (Novy Svet) |

Class of products

Name as registered in Ukraine

Transcription in Latin characters

Wine

Сонячна Долина

Soniachna Dolyna

(Soniachna Dolina)

Wine

Новий Свiт

Novyj Svit

(Novy Svet)

---

(1)  OJ L 299, 16.11.2007, p. 1.

(2)  OJ L 36, 13.2.2008, p. 16.

(3)  OJ L 239, 1.9.2006, p. 1.

(4)  OJ L 86, 31.3.1994, p. 1.

(5)  OJ L 169, 30.6.2008, p. 10.

(6)  OJ L 35, 6.2.2004, p. 1.

(7)  OJ L 352, 30.12.2002, p. 1.

(8)  OJ L 342, 27.12.2001, p. 42.

(9)  OJ L 342, 27.12.2001, p. 6.

(10)  OJ L 152, 11.6.1997, p. 15.

(11)  OJ L 345, 28.12.2007, p. 1.

(12)  OJ L 28, 30.1.2002, p. 3.

(13)  OJ L 28, 30.1.2002, p. 112.

(14)  OJ L 114, 30.4.2002, p. 1.

(15)  OJ L 87, 24.3.2006, p. 1.

(16)  List provided by the Ukrainian Authorities, in the framework of ongoing negotiations. Excerpt from the Ukrainian GI Register, Law No 752-XIV on the Protection of Rights to Indication of Origin of Goods16 June 1999 (http://www.sdip.gov.ua).

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