# Official Journal C 82/5 Ap

| | ISSN 1725-2423 |
| --- | --- |
| Official Journal
  of the European Union | C 82 |
| | |
| English edition | Information and Notices | Volume 495 April 2006 |

ISSN 1725-2423

Official Journal

of the European Union

C 82

English edition

Information and Notices

Volume 495 April 2006

---

| Notice No | Contents | page |
| --- | --- | --- |
| | I   Information |
| | Council |
| 2006/C 082/1 | Council Opinion of 14 March 2006 on the updated stability programme of Greece, 2005-2008 | 1 |
| 2006/C 082/2 | Council Opinion of 14 March 2006 on the updated stability programme of Germany, 2005-2009 | 6 |
| 2006/C 082/3 | Council Opinion of 14 March 2006 on the updated stability programme of Spain, 2005-2008 | 10 |
| 2006/C 082/4 | Council Opinion of 14 March 2006 on the updated stability programme of France, 2005-2009 | 14 |
| 2006/C 082/5 | Council Opinion of 14 March 2006 on the updated stability programme of Ireland, 2005-2008 | 19 |
| 2006/C 082/6 | Council Opinion of 14 March 2006 on the updated stability programme of Italy, 2005-2009 | 23 |
| 2006/C 082/7 | Council Opinion of 14 March 2006 on the updated stability programme of the Netherlands, 2005-2008 | 27 |
| 2006/C 082/8 | Council Opinion of 14 March 2006 on the updated stability programme of Portugal, 2005-2009 | 31 |
| 2006/C 082/9 | Council Opinion of 14 March 2006 on the updated convergence programme of Cyprus, 2005-2009 | 36 |
| 2006/C 082/0 | Council Opinion of 14 March 2006 on the updated convergence programme of Lithuania, 2005-2008 | 40 |
| 2006/C 082/1 | Council Opinion of 14 March 2006 on the updated convergence programme of Malta, 2005-2008 | 44 |
| 2006/C 082/2 | Council Opinion of 14 March 2006 on the updated convergence programme of Poland, 2005-2008 | 48 |
| 2006/C 082/3 | Council Opinion of 14 March 2006 on the updated convergence programme of the United Kingdom, 2005/2006-2010/2011 | 52 |
| | Commission |
| 2006/C 082/4 | Euro exchange rates | 57 |
| 2006/C 082/5 | Withdrawal of notification of a concentration (Case COMP/M.4162 — Merck/Schering) (
  1
  ) | 58 |
| 2006/C 082/6 | Information procedure — Technical rules (
  1
  ) | 59 |
| 2006/C 082/7 | Notice of initiation of a partial interim review of the anti-dumping measures applicable to imports of silicon originating in Russia | 64 |
| 2006/C 082/8 | Information communicated by Member States regarding State aid granted under Commission Regulation (EC) No 68/2001 of 12 January 2001 on the application of Articles 87 and 88 of the EC Treaty to training aid (
  1
  ) | 66 |
| 2006/C 082/9 | State aid — Italy — State aid No C 34/2005 (ex N 113/2005) — Legge Regionale n. 17/2004 Art. 60 — Regione Sicilia — Invitation to submit comments pursuant to Article 88(2) of the EC Treaty (
  1
  ) | 71 |

Notice No

Contents

page

I   Information

Council

2006/C 082/1

Council Opinion of 14 March 2006 on the updated stability programme of Greece, 2005-2008

1

2006/C 082/2

Council Opinion of 14 March 2006 on the updated stability programme of Germany, 2005-2009

6

2006/C 082/3

Council Opinion of 14 March 2006 on the updated stability programme of Spain, 2005-2008

10

2006/C 082/4

Council Opinion of 14 March 2006 on the updated stability programme of France, 2005-2009

14

2006/C 082/5

Council Opinion of 14 March 2006 on the updated stability programme of Ireland, 2005-2008

19

2006/C 082/6

Council Opinion of 14 March 2006 on the updated stability programme of Italy, 2005-2009

23

2006/C 082/7

Council Opinion of 14 March 2006 on the updated stability programme of the Netherlands, 2005-2008

27

2006/C 082/8

Council Opinion of 14 March 2006 on the updated stability programme of Portugal, 2005-2009

31

2006/C 082/9

Council Opinion of 14 March 2006 on the updated convergence programme of Cyprus, 2005-2009

36

2006/C 082/0

Council Opinion of 14 March 2006 on the updated convergence programme of Lithuania, 2005-2008

40

2006/C 082/1

Council Opinion of 14 March 2006 on the updated convergence programme of Malta, 2005-2008

44

2006/C 082/2

Council Opinion of 14 March 2006 on the updated convergence programme of Poland, 2005-2008

48

2006/C 082/3

Council Opinion of 14 March 2006 on the updated convergence programme of the United Kingdom, 2005/2006-2010/2011

52

Commission

2006/C 082/4

Euro exchange rates

57

2006/C 082/5

Withdrawal of notification of a concentration (Case COMP/M.4162 — Merck/Schering) (
  1
  )

1

58

2006/C 082/6

Information procedure — Technical rules (
  1
  )

1

59

2006/C 082/7

Notice of initiation of a partial interim review of the anti-dumping measures applicable to imports of silicon originating in Russia

64

2006/C 082/8

Information communicated by Member States regarding State aid granted under Commission Regulation (EC) No 68/2001 of 12 January 2001 on the application of Articles 87 and 88 of the EC Treaty to training aid (
  1
  )

1

66

2006/C 082/9

State aid — Italy — State aid No C 34/2005 (ex N 113/2005) — Legge Regionale n. 17/2004 Art. 60 — Regione Sicilia — Invitation to submit comments pursuant to Article 88(2) of the EC Treaty (
  1
  )

1

71

| | |
| --- | --- |
| | (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 Information

Council

| 5.4.2006 | EN | Official Journal of the European Union | C 82/1 |
| --- | --- | --- | --- |

5.4.2006

EN

Official Journal of the European Union

C 82/1

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COUNCIL OPINION

of 14 March 2006

on the updated stability programme of Greece, 2005-2008

(2006/C 82/01)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community,

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 14 March 2006, the Council examined the updated stability programme of Greece, which covers the period 2005 to 2008. |
| --- | --- |

(1)

On 14 March 2006, the Council examined the updated stability programme of Greece, which covers the period 2005 to 2008.

| (2) | Over the last decade, driven by robust productivity growth, real GDP growth in Greece averaged 3,5 % and was among the highest in the EU. Sustained robust growth has led to strong real convergence, accompanied by a dramatic fall in HICP inflation, which nevertheless remains well above the EU average, and by rising external imbalances. The general government deficit, in spite of high growth, remained on average well above 5 % of GDP and attained 6,6 % of GDP in 2004. Together with large below-the-line operations, it contributed to the accumulation of public debt which remained close to or above 110 % of GDP during the last ten years. |
| --- | --- |

(2)

Over the last decade, driven by robust productivity growth, real GDP growth in Greece averaged 3,5 % and was among the highest in the EU. Sustained robust growth has led to strong real convergence, accompanied by a dramatic fall in HICP inflation, which nevertheless remains well above the EU average, and by rising external imbalances. The general government deficit, in spite of high growth, remained on average well above 5 % of GDP and attained 6,6 % of GDP in 2004. Together with large below-the-line operations, it contributed to the accumulation of public debt which remained close to or above 110 % of GDP during the last ten years.

| (3) | On 5 July 2004, the Council decided that Greece was in excessive deficit. On 17 February 2005, the Council decided to give notice to Greece, in accordance with Article 104(9) to correct the excessive deficit by 2006. The Commission services' autumn 2004 forecast underlying this decision expected the deficit to reach 5,5 % of GDP in 2004. In its opinion of 6 April 2005 on the March 2005 revised updated stability programme, covering the period 2004-2007, the Council invited Greece to implement permanent measures to correct the excessive deficit by 2006 at the latest, reduce the cyclically-adjusted deficit by at least 0,5 % of GDP from 2007 onward, ensure a faster debt reduction path, implement the enacted pension reforms to ensure the sustainability of public finances, and further improve the collection and processing of general government data. |
| --- | --- |

(3)

On 5 July 2004, the Council decided that Greece was in excessive deficit. On 17 February 2005, the Council decided to give notice to Greece, in accordance with Article 104(9) to correct the excessive deficit by 2006. The Commission services' autumn 2004 forecast underlying this decision expected the deficit to reach 5,5 % of GDP in 2004. In its opinion of 6 April 2005 on the March 2005 revised updated stability programme, covering the period 2004-2007, the Council invited Greece to implement permanent measures to correct the excessive deficit by 2006 at the latest, reduce the cyclically-adjusted deficit by at least 0,5 % of GDP from 2007 onward, ensure a faster debt reduction path, implement the enacted pension reforms to ensure the sustainability of public finances, and further improve the collection and processing of general government data.

| (4) | The update estimates the 2005 deficit at 4,3 % of GDP (2), which compares with an estimate of 3,7 % of GDP in the Commission services' autumn forecast and in the previous update. The difference with the latter mainly reflects carry-over effects of the September 2005 revisions of 2002-2004 deficit outcomes, notably leading to a revised 2004 deficit of 6,6 % of GDP, while the Commission services' autumn 2005 forecasts included one-off revenues from an announced securitisation operation, which has not taken place. |
| --- | --- |

(4)

The update estimates the 2005 deficit at 4,3 % of GDP (2), which compares with an estimate of 3,7 % of GDP in the Commission services' autumn forecast and in the previous update. The difference with the latter mainly reflects carry-over effects of the September 2005 revisions of 2002-2004 deficit outcomes, notably leading to a revised 2004 deficit of 6,6 % of GDP, while the Commission services' autumn 2005 forecasts included one-off revenues from an announced securitisation operation, which has not taken place.

| (5) | The update was submitted on 21 December 2005, three weeks later than the deadline specified in the new Code of Conduct on the content and format of stability and convergence programmes. The new programme broadly follows the model structure and data provision requirements for stability and convergence programmes specified in the new Code of Conduct (3). |
| --- | --- |

(5)

The update was submitted on 21 December 2005, three weeks later than the deadline specified in the new Code of Conduct on the content and format of stability and convergence programmes. The new programme broadly follows the model structure and data provision requirements for stability and convergence programmes specified in the new Code of Conduct (3).

| (6) | The macroeconomic scenario underlying the programme expects real GDP growth will pick up from 3,6 % in 2005 to 3,9 % on average over the rest of the programme period. Assessed against currently available information, this scenario appears to be based on favourable growth assumptions, with the projected evolution of growth in the medium term appears to be on the high side, implying a relatively high estimate of the potential output growth. The programme's projections for inflation appear realistic. |
| --- | --- |

(6)

The macroeconomic scenario underlying the programme expects real GDP growth will pick up from 3,6 % in 2005 to 3,9 % on average over the rest of the programme period. Assessed against currently available information, this scenario appears to be based on favourable growth assumptions, with the projected evolution of growth in the medium term appears to be on the high side, implying a relatively high estimate of the potential output growth. The programme's projections for inflation appear realistic.

| (7) | The update's budgetary strategy aims at reducing the deficit below the 3 % of GDP threshold by 2006, in compliance with the Council notice under Article 104(9), and at pursuing fiscal consolidation towards a balanced budget. The fiscal correction is frontloaded in 2006. The deficit declines from 4,3 % of GDP in 2005 to 2,6 % in 2006 and, then, to 1,7 % in 2008. The time profile for the primary surplus is similar, improving from 0,9 % of GDP to 2,8 %. The projected adjustment is achieved through both higher tax revenues and cuts in expenditures (interest payments and public consumption). One-off revenues worth 0,6 % of GDP are envisaged for 2006. The favourable macroeconomic scenario partly explains the frontloading of the adjustment in the current update when compared with the previous one. |
| --- | --- |

(7)

The update's budgetary strategy aims at reducing the deficit below the 3 % of GDP threshold by 2006, in compliance with the Council notice under Article 104(9), and at pursuing fiscal consolidation towards a balanced budget. The fiscal correction is frontloaded in 2006. The deficit declines from 4,3 % of GDP in 2005 to 2,6 % in 2006 and, then, to 1,7 % in 2008. The time profile for the primary surplus is similar, improving from 0,9 % of GDP to 2,8 %. The projected adjustment is achieved through both higher tax revenues and cuts in expenditures (interest payments and public consumption). One-off revenues worth 0,6 % of GDP are envisaged for 2006. The favourable macroeconomic scenario partly explains the frontloading of the adjustment in the current update when compared with the previous one.

| (8) | According to the calculations of the Commission services on the basis of data in the programme and the commonly agreed methodology, the structural balance (the general government budget in cyclically-adjusted terms net of one off and other temporary measures) is projected to improve from -4,8 % of GDP in 2005 to -2,4 % of GDP in 2008, thus providing for a reduction of around 0,6 % of GDP per year. The update clearly sets a medium-term objective (MTO) for the budgetary position as meant in the Stability and Growth Pact of a balanced budget in structural terms, which the update does not envisage to achieve by 2008. As the MTO identified in the programme is more demanding than the minimum benchmark (estimated at -1,25 %), its achievement should fulfil the aim of providing a safety margin, against the occurrence of an excessive deficit. The MTO set in the programme is at an appropriate level under the current assessment as it lies within the range indicated for euro area and ERM II Member States in the Stability and Growth Pact and the code of conduct and therefore, adequately reflects the debt ratio and average potential output growth in the long term. |
| --- | --- |

(8)

According to the calculations of the Commission services on the basis of data in the programme and the commonly agreed methodology, the structural balance (the general government budget in cyclically-adjusted terms net of one off and other temporary measures) is projected to improve from -4,8 % of GDP in 2005 to -2,4 % of GDP in 2008, thus providing for a reduction of around 0,6 % of GDP per year. The update clearly sets a medium-term objective (MTO) for the budgetary position as meant in the Stability and Growth Pact of a balanced budget in structural terms, which the update does not envisage to achieve by 2008. As the MTO identified in the programme is more demanding than the minimum benchmark (estimated at -1,25 %), its achievement should fulfil the aim of providing a safety margin, against the occurrence of an excessive deficit. The MTO set in the programme is at an appropriate level under the current assessment as it lies within the range indicated for euro area and ERM II Member States in the Stability and Growth Pact and the code of conduct and therefore, adequately reflects the debt ratio and average potential output growth in the long term.

| (9) | The budgetary outcomes could be worse than projected in the programme. There are risks associated with the favourable macroeconomic scenario and information on measures envisaged at the end of the programme is lacking. Moreover, there are still some pending statistical issues with Eurostat (the estimation of surpluses of social security funds and of local governments) which might lead to an upward revision of deficit figures until 2005, with possible carry-over effects in 2006 and beyond, while the one-offs planned for 2006 are still pending of Eurostat's classification as deficit-reducing. |
| --- | --- |

(9)

The budgetary outcomes could be worse than projected in the programme. There are risks associated with the favourable macroeconomic scenario and information on measures envisaged at the end of the programme is lacking. Moreover, there are still some pending statistical issues with Eurostat (the estimation of surpluses of social security funds and of local governments) which might lead to an upward revision of deficit figures until 2005, with possible carry-over effects in 2006 and beyond, while the one-offs planned for 2006 are still pending of Eurostat's classification as deficit-reducing.

| (10) | Based on current information, and conditional on the risks above, Greece is broadly on track to correct its excessive deficit by the 2006 deadline set by the Council. The planned 2005 deficit seems consistent with a rigorous implementation of the 2005 budget, while the 2006 budget targets a deficit of 2,6 % of GDP. Since this includes one-off revenues worth 0,6 % of GDP, the excessive deficit would not be corrected in 2006 on a permanent basis. However, the structural correction in 2006 is above the minimum 0,6 % of GDP required by the Council. By contrast, the correction is less than 0,5 % of GDP in 2008, when Greece should still enjoy an economic situation of good times. Moreover, according to the calculations of the Commission services on the basis of data in the programme and the commonly agreed methodology the cyclically-adjusted budget balance is not expected to respect the minimum benchmark within the programme period. |
| --- | --- |

(10)

Based on current information, and conditional on the risks above, Greece is broadly on track to correct its excessive deficit by the 2006 deadline set by the Council. The planned 2005 deficit seems consistent with a rigorous implementation of the 2005 budget, while the 2006 budget targets a deficit of 2,6 % of GDP. Since this includes one-off revenues worth 0,6 % of GDP, the excessive deficit would not be corrected in 2006 on a permanent basis. However, the structural correction in 2006 is above the minimum 0,6 % of GDP required by the Council. By contrast, the correction is less than 0,5 % of GDP in 2008, when Greece should still enjoy an economic situation of good times. Moreover, according to the calculations of the Commission services on the basis of data in the programme and the commonly agreed methodology the cyclically-adjusted budget balance is not expected to respect the minimum benchmark within the programme period.

| (11) | The debt ratio is estimated to have reached around 108 % of GDP in 2005, far above the 60 % of GDP Treaty reference value. The programme projects the debt ratio to decline by more than eleven percentage points over the programme period, mainly driven by the projected improvement in the primary surpluses, and lower debt-increasing financial operations. The evolution of the debt ratio is likely to be less favourable than projected in the programme given (1) the risks to the budgetary targets mentioned above; (2) uncertainty about the stock-flow adjustment, which has tended to be large and predominantly debt-increasing in the past. In view of this risk assessment, the debt ratio seems to be sufficiently diminishing towards the reference value. |
| --- | --- |

(11)

The debt ratio is estimated to have reached around 108 % of GDP in 2005, far above the 60 % of GDP Treaty reference value. The programme projects the debt ratio to decline by more than eleven percentage points over the programme period, mainly driven by the projected improvement in the primary surpluses, and lower debt-increasing financial operations. The evolution of the debt ratio is likely to be less favourable than projected in the programme given (1) the risks to the budgetary targets mentioned above; (2) uncertainty about the stock-flow adjustment, which has tended to be large and predominantly debt-increasing in the past. In view of this risk assessment, the debt ratio seems to be sufficiently diminishing towards the reference value.

| (12) | With regard to the sustainability of public finances (4), Greece appears to be at high risk on grounds of the projected budgetary costs of ageing populations. The debt ratio is currently the highest in the EU, and is projected to remain at very high levels throughout the projection period up to 2050. It is therefore necessary to implement rigorously the planned consolidation of public finances over the medium-term and to further strengthen the budgetary position in order to reduce risks to public finance sustainability. At the same time, the projected increase of government expenditure, notably on pensions, over the projection period is expected to put a high burden on public finances. To this end, resolutely implementing measures enacted and designing and carrying out additional structural reforms, notably on pensions, are necessary so as to reduce the risks to public finance sustainability. |
| --- | --- |

(12)

With regard to the sustainability of public finances (4), Greece appears to be at high risk on grounds of the projected budgetary costs of ageing populations. The debt ratio is currently the highest in the EU, and is projected to remain at very high levels throughout the projection period up to 2050. It is therefore necessary to implement rigorously the planned consolidation of public finances over the medium-term and to further strengthen the budgetary position in order to reduce risks to public finance sustainability. At the same time, the projected increase of government expenditure, notably on pensions, over the projection period is expected to put a high burden on public finances. To this end, resolutely implementing measures enacted and designing and carrying out additional structural reforms, notably on pensions, are necessary so as to reduce the risks to public finance sustainability.

| (13) | The envisaged measures in the area of public finances are broadly consistent with the broad economic policy guidelines included in the integrated guidelines for the period 2005-2008. In particular, the programme is consistent with the guideline (i) to secure economic stability; (ii) to safeguard economic and fiscal sustainability, and (iii) to promote a growth-and employment-oriented and efficient allocation of resources However, actions to tackle important challenges on the pension system are postponed to a future social agreement. |
| --- | --- |

(13)

The envisaged measures in the area of public finances are broadly consistent with the broad economic policy guidelines included in the integrated guidelines for the period 2005-2008. In particular, the programme is consistent with the guideline (i) to secure economic stability; (ii) to safeguard economic and fiscal sustainability, and (iii) to promote a growth-and employment-oriented and efficient allocation of resources However, actions to tackle important challenges on the pension system are postponed to a future social agreement.

| (14) | The National Reform Programme of Greece, submitted on 15 October 2005 in the context of the renewed Lisbon strategy for growth and jobs, identifies the following challenges with significant implications for public finances: (i) long-term sustainability of public finances;(ii) employment and education;(iii) business environment and competition; and (iv) R&D and innovation. Its budgetary implications are fully reflected in the update. The measures in the area of public finances envisaged in the stability programme are broadly in line with the actions foreseen in the National Reform Programme. In particular, the programme outlines, among others, measures to reduce the corporate tax rate to 25 % by 2007, to fight against tax evasion, reform the property taxation, and to rationalise healthcare spending. |
| --- | --- |

(14)

The National Reform Programme of Greece, submitted on 15 October 2005 in the context of the renewed Lisbon strategy for growth and jobs, identifies the following challenges with significant implications for public finances: (i) long-term sustainability of public finances;(ii) employment and education;(iii) business environment and competition; and (iv) R&D and innovation. Its budgetary implications are fully reflected in the update. The measures in the area of public finances envisaged in the stability programme are broadly in line with the actions foreseen in the National Reform Programme. In particular, the programme outlines, among others, measures to reduce the corporate tax rate to 25 % by 2007, to fight against tax evasion, reform the property taxation, and to rationalise healthcare spending.

In the view of the above assessment, the Council welcomes the efforts undertaken so far and the priority given by the government to a permanent reduction of the deficit. The Council notes that, overall, the programme is consistent with the correction of the excessive deficit by 2006, subject to a full implementation of the envisaged adjustment and conditional on the effects on the planned deficits of possible further statistical revisions of budgetary data. In the light of the recommendations made by the Council under Article 104(9) of 17 February 2005, the Council invites Greece to:

| (i) | implement the necessary permanent measures leading to the correction of the excessive deficit by 2006 at the latest; |
| --- | --- |

(i)

implement the necessary permanent measures leading to the correction of the excessive deficit by 2006 at the latest;

| (ii) | further pursue the reduction of the deficit in structural terms towards the MTO set in the programme, taking advantage of good economic times to reduce primary spending; |
| --- | --- |

(ii)

further pursue the reduction of the deficit in structural terms towards the MTO set in the programme, taking advantage of good economic times to reduce primary spending;

| (iii) | enhance the efforts to identify and control factors other than net borrowing that contribute to the change in the debt levels, in order to ensure that the debt ratio is sufficiently diminishing and approaching the reference value at a satisfactory pace; |
| --- | --- |

(iii)

enhance the efforts to identify and control factors other than net borrowing that contribute to the change in the debt levels, in order to ensure that the debt ratio is sufficiently diminishing and approaching the reference value at a satisfactory pace;

| (iv) | control public pension expenditure, resolutely implement the approved pension reforms and carry out additional structural reform to ensure the long term sustainability of the public finances; |
| --- | --- |

(iv)

control public pension expenditure, resolutely implement the approved pension reforms and carry out additional structural reform to ensure the long term sustainability of the public finances;

| (v) | further improve the collection and processing of the general government data, notably by enhancing the mechanisms that ensure a prompt and correct supply of budgetary data, in particular on social security. |
| --- | --- |

(v)

further improve the collection and processing of the general government data, notably by enhancing the mechanisms that ensure a prompt and correct supply of budgetary data, in particular on social security.

Comparison of key macroeconomic and budgetary projections

| | 2004 | 2005 | 2006 | 2007 | 2008 |
| --- | --- | --- | --- | --- | --- |
| Real GDP
  (% change) | SP Dec 2005 | 4,7 | 3,6 | 3,8 | 3,8 | 4,0 |
| COM Nov 2005 | 4,7 | 3,5 | 3,4 | 3,4 | n.a. |
| SP March 2005 | 4,2 | 2,9 | 3,0 | 3,0 | n.a. |
| HICP inflation
  (%) | SP Dec 2005 | 3,0 | 3,5 | 3,2 | 3,0 | 2,7 |
| COM Nov 2005 | 3,1 | 3,5 | 3,1 | 3,0 | n.a. |
| SP March 2005 | 3,0 | n.a | n.a | n.a | n.a. |
| Output gap
  (% of potential GDP) | SP Dec 2005 (5) | 1,4 | 1,1 | 1,1 | 1,1 | 1,5 |
| COM Nov 2005 (9) | 2,0 | 2,0 | 2,0 | 2,2 | n.a. |
| SP March 2005 (5) | 2,1 | 1,6 | 1,5 | 1,5 | n.a. |
| General government balance
  (% of GDP) | SP Dec 2005 | – 6,6 | – 4,3 | – 2,6 | – 2,3 | – 1,7 |
| COM Nov 2005 | – 6,6 | – 3,7 | – 3,8 | – 3,8 | n.a. |
| SP March 2005 | – 6,1 | – 3,7 | – 2,9 | – 2,4 | n.a. |
| Primary balance
  (% of GDP) | SP Dec 2005 | – 0,9 | 0,9 | 2,3 | 2,4 | 2,8 |
| COM Nov 2005 | – 0,9 | 1,7 | 1,2 | 0,9 | n.a. |
| SP March 2005 | – 0,4 | 1,8 | 2,7 | 3,3 | n.a. |
| Cyclically-adjusted balance
  (% of GDP) | SP Dec 2005 (5) | – 7,2 | – 4,8 | – 3,1 | – 2,8 | – 2,4 |
| COM Nov 2005 | – 7,5 | – 4,5 | – 4,6 | – 4,8 | n.a. |
| SP March 2005 (5) | – 7,0 | – 4,4 | – 3,5 | – 3,0 | n.a. |
| Structural balance (6)

  (% of GDP) | SP Dec 2005 (7) | – 7,2 | – 4,8 | – 3,7 | – 2,8 | – 2,4 |
| COM Nov 2005 (8) | – 7,5 | – 5,3 | – 4,6 | – 4,8 | n.a. |
| SP March 2005 | – 7,0 | – 4,4 | – 3,5 | – 3,0 | n.a. |
| Government gross debt
  (% of GDP) | SP Dec 2005 | 109,3 | 107,9 | 104,8 | 101,1 | 96,8 |
| COM Nov 2005 | 109,3 | 107,9 | 106,8 | 106 | n.a. |
| SP March 2005 | 110,5 | 109,5 | 107,2 | 104,7 | n.a. |
| Stability programme (SP); Commission services' autumn 2005 economic forecasts (COM); Commission services' calculations |

2004

2005

2006

2007

2008

Real GDP

(% change)

SP Dec 2005

4,7

3,6

3,8

3,8

4,0

COM Nov 2005

4,7

3,5

3,4

3,4

n.a.

SP March 2005

4,2

2,9

3,0

3,0

n.a.

HICP inflation

(%)

SP Dec 2005

3,0

3,5

3,2

3,0

2,7

COM Nov 2005

3,1

3,5

3,1

3,0

n.a.

SP March 2005

3,0

n.a

n.a

n.a

n.a.

Output gap

(% of potential GDP)

SP Dec 2005 (5)

1,4

1,1

1,1

1,1

1,5

COM Nov 2005 (9)

2,0

2,0

2,0

2,2

n.a.

SP March 2005 (5)

2,1

1,6

1,5

1,5

n.a.

General government balance

(% of GDP)

SP Dec 2005

– 6,6

– 4,3

– 2,6

– 2,3

– 1,7

COM Nov 2005

– 6,6

– 3,7

– 3,8

– 3,8

n.a.

SP March 2005

– 6,1

– 3,7

– 2,9

– 2,4

n.a.

Primary balance

(% of GDP)

SP Dec 2005

– 0,9

0,9

2,3

2,4

2,8

COM Nov 2005

– 0,9

1,7

1,2

0,9

n.a.

SP March 2005

– 0,4

1,8

2,7

3,3

n.a.

Cyclically-adjusted balance

(% of GDP)

SP Dec 2005 (5)

– 7,2

– 4,8

– 3,1

– 2,8

– 2,4

COM Nov 2005

– 7,5

– 4,5

– 4,6

– 4,8

n.a.

SP March 2005 (5)

– 7,0

– 4,4

– 3,5

– 3,0

n.a.

Structural balance (6)

(% of GDP)

SP Dec 2005 (7)

– 7,2

– 4,8

– 3,7

– 2,8

– 2,4

COM Nov 2005 (8)

– 7,5

– 5,3

– 4,6

– 4,8

n.a.

SP March 2005

– 7,0

– 4,4

– 3,5

– 3,0

n.a.

Government gross debt

(% of GDP)

SP Dec 2005

109,3

107,9

104,8

101,1

96,8

COM Nov 2005

109,3

107,9

106,8

106

n.a.

SP March 2005

110,5

109,5

107,2

104,7

n.a.

Stability programme (SP); Commission services' autumn 2005 economic forecasts (COM); Commission services' calculations

---

(1)  OJ L 209, 2.8.1997, p. 1. Regulation as amended by Regulation (EC) No 1055/2005 (OJ L 174, 7.7.2005, p. 1). The documents referred to in this text can be found at the following website:

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

(2)  This figure does not include 0,3 % of GDP (EUR 512 million) corresponding to the reimbursement of European Regional Development funds. However, being a genuine one-off expenditure, its consideration would not have any impact on the fiscal effort in 2005, neither on the 2006-2008 adjustment path.

(3)  The programme has a gap in the compulsory data (Exchange rates are presented in terms of EUR/USD instead of nominal effective exchange rates) and does not provide all optional data prescribed by the new code of conduct.

(4)  Details on long-term sustainability are provided in the technical assessment of the programme by the Commission services

(http://europa.eu.int/comm/economy_finance/about/activities/sgp/main_en.htm).

(5)  Commission services calculations on the basis of the information in the programme

(6)  Cyclically-adjusted balance (as in the previous rows) excluding one-off and other temporary measures

(7)  One-off and other temporary measures taken from the programme (0.6% of GDP in 2006)

(8)  One-off and other temporary measures taken from the Commission services' autumn 2005 forecast (0.8% of GDP in 2005)

(9)  Based on estimated potential growth of 3.2%, 3.5%, 3.4% and 3.2% respectively in the period 2004-2007.

Source:

Stability programme (SP); Commission services' autumn 2005 economic forecasts (COM); Commission services' calculations

---

| 5.4.2006 | EN | Official Journal of the European Union | C 82/6 |
| --- | --- | --- | --- |

5.4.2006

EN

Official Journal of the European Union

C 82/6

---

COUNCIL OPINION

of 14 March 2006

on the updated stability programme of Germany, 2005-2009

(2006/C 82/02)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community,

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 14 March 2006 the Council examined the updated stability programme of Germany. |
| --- | --- |

(1)

On 14 March 2006 the Council examined the updated stability programme of Germany.

| (2) | GDP growth in the last ten years was 1,4 % p.a., trailing the euro-area average by more than half a percentage point. The growth potential has been steadily declining throughout this period. Activity, while being driven by buoyant exports, was held back by sluggish domestic demand. From an extended stagnation in the early part of the decade, demand and real GDP peaked shortly in 2000 and also in 2004, but weakened again thereafter. With employment creation also subdued, the unemployment rate rose to 9,5 % of the labour force. The general government deficit breached the 3 % of GDP Treaty reference value for the fourth consecutive year in 2005. Public debt, having been close to 40 % of GDP in 1991, has been exceeding the 60 % of GDP Treaty reference value since 2002. |
| --- | --- |

(2)

GDP growth in the last ten years was 1,4 % p.a., trailing the euro-area average by more than half a percentage point. The growth potential has been steadily declining throughout this period. Activity, while being driven by buoyant exports, was held back by sluggish domestic demand. From an extended stagnation in the early part of the decade, demand and real GDP peaked shortly in 2000 and also in 2004, but weakened again thereafter. With employment creation also subdued, the unemployment rate rose to 9,5 % of the labour force. The general government deficit breached the 3 % of GDP Treaty reference value for the fourth consecutive year in 2005. Public debt, having been close to 40 % of GDP in 1991, has been exceeding the 60 % of GDP Treaty reference value since 2002.

| (3) | On 21 January 2003, the Council decided that an excessive deficit existed in Germany, and recommended, based on Article 104(7), that the excessive deficit be corrected by 2004. In its Communication to the Council of December 2004 on ‘the situation of Germany and France in relation to their obligations under the excessive deficit procedure following the judgement of the Court of Justice’, the Commission concluded that 2005 should be considered as the relevant deadline for the correction. In January 2005, the Council concurred with this view. On 14 March 2006, the Council decided to give notice to Germany in accordance with Article 104(9) to take measures to remedy the situation of excessive deficit by 2007. In its opinion of 17 February 2005 on the December 2004 update of the stability programme, covering the period 2004-2008, the Council invited Germany: to do the necessary to ensure the correction of the excessive deficit in 2005; to implement budgetary adjustments in the years beyond 2005 and make the necessary effort in structural terms to achieve a budgetary position of close to balance by the end of the period covered by the programme; and to continue with structural reforms in order to further improve the long-term sustainability of public finances in particular as regards the health care system. |
| --- | --- |

(3)

On 21 January 2003, the Council decided that an excessive deficit existed in Germany, and recommended, based on Article 104(7), that the excessive deficit be corrected by 2004. In its Communication to the Council of December 2004 on ‘the situation of Germany and France in relation to their obligations under the excessive deficit procedure following the judgement of the Court of Justice’, the Commission concluded that 2005 should be considered as the relevant deadline for the correction. In January 2005, the Council concurred with this view. On 14 March 2006, the Council decided to give notice to Germany in accordance with Article 104(9) to take measures to remedy the situation of excessive deficit by 2007. In its opinion of 17 February 2005 on the December 2004 update of the stability programme, covering the period 2004-2008, the Council invited Germany: to do the necessary to ensure the correction of the excessive deficit in 2005; to implement budgetary adjustments in the years beyond 2005 and make the necessary effort in structural terms to achieve a budgetary position of close to balance by the end of the period covered by the programme; and to continue with structural reforms in order to further improve the long-term sustainability of public finances in particular as regards the health care system.

| (4) | According to data provided by Eurostat, the general government deficit in Germany amounted to 3,3 % of GDP in 2005. These data, pending a further assessment of their quality, are based upon a provisional notification from Germany pursuant to Council Regulation (EC) No 3605/93, which Germany submitted to the Commission on 24 February 2006. The previous update of the stability programme had set a target of 2,9 % of GDP for 2005. |
| --- | --- |

(4)

According to data provided by Eurostat, the general government deficit in Germany amounted to 3,3 % of GDP in 2005. These data, pending a further assessment of their quality, are based upon a provisional notification from Germany pursuant to Council Regulation (EC) No 3605/93, which Germany submitted to the Commission on 24 February 2006. The previous update of the stability programme had set a target of 2,9 % of GDP for 2005.

| (5) | The German stability programme update was submitted on 22 February 2006. The programme covers the period from 2005 to 2009. The programme broadly follows the model structure for stability and convergence programmes specified in the new code of conduct (2). |
| --- | --- |

(5)

The German stability programme update was submitted on 22 February 2006. The programme covers the period from 2005 to 2009. The programme broadly follows the model structure for stability and convergence programmes specified in the new code of conduct (2).

| (6) | The macroeconomic scenario underlying the programme envisages that real GDP growth will pick up from 0,9 % in 2005 to 1,4 % in 2006, with domestic demand gaining momentum. After a slowdown to 1 % in 2007, growth is set to resume thereafter, yielding an average growth rate of 1,5 % for the period from 2005 to 2009. This growth profile is influenced by the policy settings agreed by the new coalition government. The reference scenario, considered against currently available information, appears plausible, but may be slightly favourable in the outer years of the programme. The programme's projections for inflation appear realistic. |
| --- | --- |

(6)

The macroeconomic scenario underlying the programme envisages that real GDP growth will pick up from 0,9 % in 2005 to 1,4 % in 2006, with domestic demand gaining momentum. After a slowdown to 1 % in 2007, growth is set to resume thereafter, yielding an average growth rate of 1,5 % for the period from 2005 to 2009. This growth profile is influenced by the policy settings agreed by the new coalition government. The reference scenario, considered against currently available information, appears plausible, but may be slightly favourable in the outer years of the programme. The programme's projections for inflation appear realistic.

| (7) | The main goal of the medium-term budgetary strategy indicated in the programme is to ensure the long-term sustainability of public finances. To achieve this, the programme proposes to continue budgetary consolidation, while improving the conditions for growth and employment. The programme envisages correcting the excessive deficit by 2007. Specifically, for 2006 and 2007 the projections in the update are for nominal deficits of 3,3 % and 2,5 % of GDP, respectively. Thereafter, the deficit is projected to decline by 0,5percentage point of GDP per year to reach a level of 1,5 % of GDP in 2009. The budgetary adjustment is both revenue- and expenditure-based. The programme identifies the restraint in social expenditure as the crucial element of the consolidation strategy. On the revenue side, an increase in the tax share is broadly offset by a decrease in the share of social contributions. The share of public investment in GDP is projected to remain constant. Compared with the previous update, the adjustment path has remained broadly the same. However, the deficit ratio is planned to be higher for each year by a rounded 0,5 percentage point, and for 2006 by even more, than foreseen in the previous update. |
| --- | --- |

(7)

The main goal of the medium-term budgetary strategy indicated in the programme is to ensure the long-term sustainability of public finances. To achieve this, the programme proposes to continue budgetary consolidation, while improving the conditions for growth and employment. The programme envisages correcting the excessive deficit by 2007. Specifically, for 2006 and 2007 the projections in the update are for nominal deficits of 3,3 % and 2,5 % of GDP, respectively. Thereafter, the deficit is projected to decline by 0,5percentage point of GDP per year to reach a level of 1,5 % of GDP in 2009. The budgetary adjustment is both revenue- and expenditure-based. The programme identifies the restraint in social expenditure as the crucial element of the consolidation strategy. On the revenue side, an increase in the tax share is broadly offset by a decrease in the share of social contributions. The share of public investment in GDP is projected to remain constant. Compared with the previous update, the adjustment path has remained broadly the same. However, the deficit ratio is planned to be higher for each year by a rounded 0,5 percentage point, and for 2006 by even more, than foreseen in the previous update.

| (8) | The correction of the excessive deficit by 2007 entails, according to the programme, an improvement in the structural balance (i.e. the cyclically-adjusted balance net of one-off and other temporary measures) by more than one percentage point cumulatively between 2005 and 2007, concentrated in 2007. Over the programme period, the structural balance calculated according to the commonly agreed methodology is planned to improve on average by about 0,5 % of GDP per year, although slightly less in 2008 and 2009. The programme sets the medium-term objective (MTO) for the budgetary position as balance in structural terms, which, however, it does not aim to achieve within the programme period. As it is more demanding than the minimum benchmark (estimated at a deficit of around 1,75 % of GDP), its achievement should fulfil the aim of providing a safety margin against the occurrence of an excessive deficit. The programme's MTO lies within the range indicated for euro area and ERM II Member States in the Stability and Growth Pact and the code of conduct and is slightly more demanding than implied by the debt ratio and average potential output growth in the long term. |
| --- | --- |

(8)

The correction of the excessive deficit by 2007 entails, according to the programme, an improvement in the structural balance (i.e. the cyclically-adjusted balance net of one-off and other temporary measures) by more than one percentage point cumulatively between 2005 and 2007, concentrated in 2007. Over the programme period, the structural balance calculated according to the commonly agreed methodology is planned to improve on average by about 0,5 % of GDP per year, although slightly less in 2008 and 2009. The programme sets the medium-term objective (MTO) for the budgetary position as balance in structural terms, which, however, it does not aim to achieve within the programme period. As it is more demanding than the minimum benchmark (estimated at a deficit of around 1,75 % of GDP), its achievement should fulfil the aim of providing a safety margin against the occurrence of an excessive deficit. The programme's MTO lies within the range indicated for euro area and ERM II Member States in the Stability and Growth Pact and the code of conduct and is slightly more demanding than implied by the debt ratio and average potential output growth in the long term.

| (9) | Concerning 2006, the risks to the budgetary outcome are considered to be balanced. However, as from 2007, the budgetary outcome could be worse than projected in the programme. The restraint in social spending, which is not laid out in full detail in the programme but is supposed to provide a key contribution to the budgetary adjustment, hinges on the rigorous implementation of the plans. Social expenditure has been one of the main drivers behind the overshooting of the budgetary targets compared with previous programmes. The budgetary targets would be jeopardised if the planned exoneration on social contributions was fully carried out without achieving the corresponding expenditure targets. Moreover, shortfalls in growth might imply shortfalls in revenues, which might prove difficult to compensate by further reduction in expenditure in order to maintain the planned path of the deficit ratio. The programme further announces reforms of the corporate tax system by 2008 and to health and long-term care insurance which, if not fully financed as envisaged in the programme, would entail a negative impact on the deficit in the short term. |
| --- | --- |

(9)

Concerning 2006, the risks to the budgetary outcome are considered to be balanced. However, as from 2007, the budgetary outcome could be worse than projected in the programme. The restraint in social spending, which is not laid out in full detail in the programme but is supposed to provide a key contribution to the budgetary adjustment, hinges on the rigorous implementation of the plans. Social expenditure has been one of the main drivers behind the overshooting of the budgetary targets compared with previous programmes. The budgetary targets would be jeopardised if the planned exoneration on social contributions was fully carried out without achieving the corresponding expenditure targets. Moreover, shortfalls in growth might imply shortfalls in revenues, which might prove difficult to compensate by further reduction in expenditure in order to maintain the planned path of the deficit ratio. The programme further announces reforms of the corporate tax system by 2008 and to health and long-term care insurance which, if not fully financed as envisaged in the programme, would entail a negative impact on the deficit in the short term.

| (10) | In view of this risk assessment, the budgetary stance in the programme seems consistent with a correction of the excessive deficit by 2007. However, it does not seem to provide a sufficient safety margin against breaching the 3 % of GDP deficit threshold with normal macroeconomic fluctuations until the penultimate year of the programme period. In the years following the correction of the excessive deficit, the pace of the adjustment towards the programme's MTO implied by the programme is broadly in line with the Stability and Growth Pact, which specifies that, for euro area and ERM II Member States, the annual improvement in the structural balance should be 0,5 % of GDP as a benchmark and that the adjustment should be higher in good economic times and could be lower in bad economic times. |
| --- | --- |

(10)

In view of this risk assessment, the budgetary stance in the programme seems consistent with a correction of the excessive deficit by 2007. However, it does not seem to provide a sufficient safety margin against breaching the 3 % of GDP deficit threshold with normal macroeconomic fluctuations until the penultimate year of the programme period. In the years following the correction of the excessive deficit, the pace of the adjustment towards the programme's MTO implied by the programme is broadly in line with the Stability and Growth Pact, which specifies that, for euro area and ERM II Member States, the annual improvement in the structural balance should be 0,5 % of GDP as a benchmark and that the adjustment should be higher in good economic times and could be lower in bad economic times.

| (11) | The debt ratio is estimated to have reached 67,5 % of GDP in 2005, above the 60 % of GDP reference value of the Treaty. The programme projects the debt ratio to increase to a rounded 69 % of GDP in 2006 and to decline thereafter to reach 67 % at the end of the programme period. The evolution of the debt ratio might be less favourable than projected in the programme, given the risks to the budgetary targets mentioned above. In view of this risk assessment, the debt ratio may not be sufficiently diminishing towards the reference value. |
| --- | --- |

(11)

The debt ratio is estimated to have reached 67,5 % of GDP in 2005, above the 60 % of GDP reference value of the Treaty. The programme projects the debt ratio to increase to a rounded 69 % of GDP in 2006 and to decline thereafter to reach 67 % at the end of the programme period. The evolution of the debt ratio might be less favourable than projected in the programme, given the risks to the budgetary targets mentioned above. In view of this risk assessment, the debt ratio may not be sufficiently diminishing towards the reference value.

| (12) | With regard to the sustainability of public finances, Germany appears to be at medium risk on grounds of the projected budgetary costs of ageing populations (3). The structural reforms carried out in previous years, and in particular the pension reform, have helped to contain future rises in public expenditure. In view of the current level of government gross debt exceeding the Treaty reference value of 60 % of GDP and the currently high structural deficit, implementing rigorously a strong budgetary consolidation over the programme period is necessary so as to reduce the risks to long-term sustainability. |
| --- | --- |

(12)

With regard to the sustainability of public finances, Germany appears to be at medium risk on grounds of the projected budgetary costs of ageing populations (3). The structural reforms carried out in previous years, and in particular the pension reform, have helped to contain future rises in public expenditure. In view of the current level of government gross debt exceeding the Treaty reference value of 60 % of GDP and the currently high structural deficit, implementing rigorously a strong budgetary consolidation over the programme period is necessary so as to reduce the risks to long-term sustainability.

| (13) | The envisaged measures in the area of public finances are broadly consistent with the broad economic policy guidelines included in the integrated guidelines for the period 2005-2008. In particular, Germany plans to implement a number of structural reforms in order to improve the sustainability of government finances in the medium to long run. If the expenditure restraint in the social security systems was implemented as planned, the composition of public expenditure would be more favourable towards growth-enhancing categories in line with the Lisbon strategy. |
| --- | --- |

(13)

The envisaged measures in the area of public finances are broadly consistent with the broad economic policy guidelines included in the integrated guidelines for the period 2005-2008. In particular, Germany plans to implement a number of structural reforms in order to improve the sustainability of government finances in the medium to long run. If the expenditure restraint in the social security systems was implemented as planned, the composition of public expenditure would be more favourable towards growth-enhancing categories in line with the Lisbon strategy.

| (14) | Germany's National Reform Programme (NRP), submitted on 7 December 2005 within the context of the renewed Lisbon strategy for growth and jobs, identifies six key challenges: the knowledge society; market functioning and competitiveness; business environment; the sustainability of public finances (including sustainable growth and social security); ecological innovation; and the re-orientation of the labour market. Overall, the measures in the area of public finances envisaged in the stability programme are in line with the actions foreseen in the National Reform Programme. The budgetary implications of the actions outlined in the NRP are broadly reflected in the budgetary projections of the stability programme. In addition to the content of the NRP, the stability programme envisages, as part of the reform of the federal system, that potential sanctions, which might arise from the Stability and Growth Pact, would be allocated according to a rule across levels of government. This would be inserted into the German Constitution. |
| --- | --- |

(14)

Germany's National Reform Programme (NRP), submitted on 7 December 2005 within the context of the renewed Lisbon strategy for growth and jobs, identifies six key challenges: the knowledge society; market functioning and competitiveness; business environment; the sustainability of public finances (including sustainable growth and social security); ecological innovation; and the re-orientation of the labour market. Overall, the measures in the area of public finances envisaged in the stability programme are in line with the actions foreseen in the National Reform Programme. The budgetary implications of the actions outlined in the NRP are broadly reflected in the budgetary projections of the stability programme. In addition to the content of the NRP, the stability programme envisages, as part of the reform of the federal system, that potential sanctions, which might arise from the Stability and Growth Pact, would be allocated according to a rule across levels of government. This would be inserted into the German Constitution.

In view of the above assessment, the Council welcomes the priority attributed by the government to budgetary consolidation as laid out in the programme, but notes that there are risks linked to the achievement of the budgetary targets and to long-term sustainability of public finances. Also in the light of the Council decision of 14 March in accordance with Article 104(9) of the Treaty, the Council invites Germany to:

| — | Ensure the planned cumulative structural adjustment of at least one percentage point in the years 2006 and 2007 which would bring the general government deficit below 3 % of GDP at the latest by 2007 in a credible and sustainable manner; |
| --- | --- |

—

Ensure the planned cumulative structural adjustment of at least one percentage point in the years 2006 and 2007 which would bring the general government deficit below 3 % of GDP at the latest by 2007 in a credible and sustainable manner;

| — | Rapidly achieve the medium-term budgetary objective through a reduction in the structural balance of at least 0,5 percentage point per year after the excessive deficit has been corrected, notably by implementing the planned expenditure restraint rigorously so as to be able to provide the planned relief on social contributions, and by ensuring that the announced reform on corporate taxation does not jeopardise the fiscal consolidation; |
| --- | --- |

—

Rapidly achieve the medium-term budgetary objective through a reduction in the structural balance of at least 0,5 percentage point per year after the excessive deficit has been corrected, notably by implementing the planned expenditure restraint rigorously so as to be able to provide the planned relief on social contributions, and by ensuring that the announced reform on corporate taxation does not jeopardise the fiscal consolidation;

| — | Implement the plans to reform the federal system in order to improve the budgetary framework and thus contribute to ensuring that budgetary targets are achieved at all levels of government. |
| --- | --- |

—

Implement the plans to reform the federal system in order to improve the budgetary framework and thus contribute to ensuring that budgetary targets are achieved at all levels of government.

Comparison of key macroeconomic and budgetary projections

| | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 |
| --- | --- | --- | --- | --- | --- | --- |
| Real GDP
  (% change) | SP Feb 2006 | 1,6 | 0,9 | 1,5 | 1 | 1,75 | 1,75 |
| COM Nov 2005 (9) | 1,6 | 0,8 | 1,2 | 1,6 | — | — |
| SP Dec 2004 | 1,8 | 1,7 | 1,75 | 2 | — | — |
| HICP inflation
  (%) | SP Feb 2006 | — | — | — | — | — | — |
| COM Nov 2005 | 1,8 | 2,0 | 1,6 | 1,1 | — | — |
| SP Dec 2004 | — | — | — | — | — | — |
| Output gap
  (% of potential GDP) | SP Feb 2006 (4) | – 0,6 | – 0,9 | – 0,7 | – 1,1 | – 0,7 | – 0,4 |
| COM Nov 2005 (8) | – 0,6 | – 0,9 | – 0,8 | – 0,4 | — | — |
| SP Dec 2004 (4) | – 1,2 | – 0,9 | – 0,7 | – 0,3 | – 0,0 | — |
| General government balance
  (% of GDP) | SP Feb 2006 | – 3,7 | – 3,3 | – 3,3 | – 2,5 | – 2 | – 1,5 |
| COM Nov 2005 | – 3,7 | – 3,9 | – 3,7 | – 3,3 | — | — |
| SP Dec 2004 | – 3,75 | – 2,9 | – 2,5 | – 2 | – 1,5 | — |
| Primary balance
  (% of GDP) | SP Feb 2006 | – 0,8 | – 0,5 | – 0,5 | 0,5 | 1,25 | 1,5 |
| COM Nov 2005 | – 0,8 | – 0,9 | – 0,9 | – 0,4 | — | — |
| SP Dec 2004 | – 0,5 | 0 | 0,5 | 1,5 | 2 | — |
| Cyclically-adjusted balance
  (% of GDP) | SP Feb 2006 (4) | – 3,4 | – 2,9 | – 2,9 | – 1,8 | – 1,5 | – 1,1 |
| COM Nov 2005 | – 3,3 | – 3,2 | – 3,2 | – 3,0 | — | — |
| SP Dec 2004 (4) | – 3,0 | – 2,4 | – 1,9 | – 1,6 | – 1,3 | — |
| Structural balance (5)

  (% of GDP) | SP Feb 2006 (6) | – 3,4 | – 3,0 | – 2,9 | – 1,8 | – 1,5 | – 1,1 |
| COM Nov 2005 (7) | – 3,3 | – 3,2 | – 3,2 | – 3,0 | — | — |
| SP Dec 2004 | — | — | — | — | — | — |
| Government gross debt
  (% of GDP) | SP Feb 2006 | 65,5 | 67,5 | 69 | 68,5 | 68 | 67 |
| COM Nov 2005 (10) | 66,4 | 68,6 | 70,0 | 71,4 | — | — |
| SP Dec 2004 | 65,5 | 66 | 66 | 65,5 | 65 | — |
| Stability programme (SP); Commission services' autumn 2005 economic forecasts (COM) on the basis of unchanged policies before the new government took office in November 2005; Commission services' calculations. |

2004

2005

2006

2007

2008

2009

Real GDP

(% change)

SP Feb 2006

1,6

0,9

1,5

1

1,75

1,75

COM Nov 2005 (9)

1,6

0,8

1,2

1,6

—

—

SP Dec 2004

1,8

1,7

1,75

2

—

—

HICP inflation

(%)

SP Feb 2006

—

—

—

—

—

—

COM Nov 2005

1,8

2,0

1,6

1,1

—

—

SP Dec 2004

—

—

—

—

—

—

Output gap

(% of potential GDP)

SP Feb 2006 (4)

– 0,6

– 0,9

– 0,7

– 1,1

– 0,7

– 0,4

COM Nov 2005 (8)

– 0,6

– 0,9

– 0,8

– 0,4

—

—

SP Dec 2004 (4)

– 1,2

– 0,9

– 0,7

– 0,3

– 0,0

—

General government balance

(% of GDP)

SP Feb 2006

– 3,7

– 3,3

– 3,3

– 2,5

– 2

– 1,5

COM Nov 2005

– 3,7

– 3,9

– 3,7

– 3,3

—

—

SP Dec 2004

– 3,75

– 2,9

– 2,5

– 2

– 1,5

—

Primary balance

(% of GDP)

SP Feb 2006

– 0,8

– 0,5

– 0,5

0,5

1,25

1,5

COM Nov 2005

– 0,8

– 0,9

– 0,9

– 0,4

—

—

SP Dec 2004

– 0,5

0

0,5

1,5

2

—

Cyclically-adjusted balance

(% of GDP)

SP Feb 2006 (4)

– 3,4

– 2,9

– 2,9

– 1,8

– 1,5

– 1,1

COM Nov 2005

– 3,3

– 3,2

– 3,2

– 3,0

—

—

SP Dec 2004 (4)

– 3,0

– 2,4

– 1,9

– 1,6

– 1,3

—

Structural balance (5)

(% of GDP)

SP Feb 2006 (6)

– 3,4

– 3,0

– 2,9

– 1,8

– 1,5

– 1,1

COM Nov 2005 (7)

– 3,3

– 3,2

– 3,2

– 3,0

—

—

SP Dec 2004

—

—

—

—

—

—

Government gross debt

(% of GDP)

SP Feb 2006

65,5

67,5

69

68,5

68

67

COM Nov 2005 (10)

66,4

68,6

70,0

71,4

—

—

SP Dec 2004

65,5

66

66

65,5

65

—

Stability programme (SP); Commission services' autumn 2005 economic forecasts (COM) on the basis of unchanged policies before the new government took office in November 2005; Commission services' calculations.

---

(1)  OJ L 209, 2.8.1997, p. 1. Regulation as amended by Regulation (EC) No 1055/2005 (OJ L 174, 7.7.2005, p. 1). The documents referred to in this text can be found at the following website:

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

(2)  As in previous years, the update contains only rounded data and sometimes period averages for the outer years of the programme period. It has gaps in the compulsory data and does not provide all optional data prescribed by the new code of conduct (especially data on unemployment, sectoral balances and a breakdown of tax revenues are missing).

(3)  Details on long-term sustainability are provided in the technical assessment of the programme by the Commission services

(http://europa.eu.int/comm/economy_finance/about/activities/sgp/main_en.htm).

(4)  Commission services calculations on the basis of the information in the programme.

(5)  Cyclically-adjusted balance (as in the previous rows) excluding one-off and other temporary measures.

(6)  One-off and other temporary measures taken from the programme (0.1% of GDP in 2005).

(7)  One-off and other temporary measures taken from the Commission services' autumn 2005 forecast.

(8)  Based on estimated potential growth of 1.1%, 1.1%, 1.1% and 1.2% respectively in the period 2004-2007.

(9)  According to first estimates, growth was 0.9% in 2005. The Commission services' interim forecast of 21 February 2006 projects growth at 1.5% in 2006.

(10)  The ratio was calculated using the GDP series with the old method of accounting for FISIM (financial services indirectly measured), so data are not directly comparable.

Source:

Stability programme (SP); Commission services' autumn 2005 economic forecasts (COM) on the basis of unchanged policies before the new government took office in November 2005; Commission services' calculations.

---

| 5.4.2006 | EN | Official Journal of the European Union | C 82/10 |
| --- | --- | --- | --- |

5.4.2006

EN

Official Journal of the European Union

C 82/10

---

COUNCIL OPINION

of 14 March 2006

on the updated stability programme of Spain, 2005-2008

(2006/C 82/03)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community,

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 14 March 2006 the Council examined the updated stability programme of Spain, which covers the period 2005 to 2008. |
| --- | --- |

(1)

On 14 March 2006 the Council examined the updated stability programme of Spain, which covers the period 2005 to 2008.

| (2) | At an average annual rate of 3,5 %, real GDP growth in Spain was among the highest in the EU over the last ten years. Increasing by 3,25 % per year, job creation underpinned robust growth. In contrast, Spain has been lagging behind the euro area in terms of productivity growth (0,5 % compared with 1 % in the euro area). HICP inflation while easing to a level close to 3 % in 2004 has remained above the euro-area average. The higher inflation and lower productivity growth than its main (trade) partners have led to competitiveness losses contributing together with robust domestic demand to the deterioration of the external position, which attained a deficit of 6,5 % of GDP in 2005. Fiscal consolidation since the second half of the nineties has contributed to containing such developments. |
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(2)

At an average annual rate of 3,5 %, real GDP growth in Spain was among the highest in the EU over the last ten years. Increasing by 3,25 % per year, job creation underpinned robust growth. In contrast, Spain has been lagging behind the euro area in terms of productivity growth (0,5 % compared with 1 % in the euro area). HICP inflation while easing to a level close to 3 % in 2004 has remained above the euro-area average. The higher inflation and lower productivity growth than its main (trade) partners have led to competitiveness losses contributing together with robust domestic demand to the deterioration of the external position, which attained a deficit of 6,5 % of GDP in 2005. Fiscal consolidation since the second half of the nineties has contributed to containing such developments.

| (3) | In its opinion of 8 March 2005 on the previous update of the stability programme, also covering the period 2004-2008, the Council invited Spain to adopt measures to prevent the emergence of unsustainable trends, in particular a comprehensive reform of the pension system aimed at aligning more closely contributions and pension benefits. |
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(3)

In its opinion of 8 March 2005 on the previous update of the stability programme, also covering the period 2004-2008, the Council invited Spain to adopt measures to prevent the emergence of unsustainable trends, in particular a comprehensive reform of the pension system aimed at aligning more closely contributions and pension benefits.

| (4) | As regards budgetary implementation in 2005, the general government surplus is estimated at 1 % of GDP, which compares with 0,2 % in the Commission services' autumn forecast and 0,1 % of GDP in the previous update. The overachievement of the 2005 target is the result of higher-than-expected revenues, while the expenditure ceilings of the central government will most likely be met. |
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(4)

As regards budgetary implementation in 2005, the general government surplus is estimated at 1 % of GDP, which compares with 0,2 % in the Commission services' autumn forecast and 0,1 % of GDP in the previous update. The overachievement of the 2005 target is the result of higher-than-expected revenues, while the expenditure ceilings of the central government will most likely be met.

| (5) | The new programme broadly follows the model structure and data provision requirements for stability and convergence programmes specified in the new code of conduct (2). The update was submitted four weeks beyond the 1 December deadline set in the code of conduct. |
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(5)

The new programme broadly follows the model structure and data provision requirements for stability and convergence programmes specified in the new code of conduct (2). The update was submitted four weeks beyond the 1 December deadline set in the code of conduct.

| (6) | GDP growth is projected at around 3,25 % over the programme period. GDP is projected to be sustained by domestic demand, though the growth of private and public consumption as well as residential construction is expected to slow down. The negative contribution of the external sector is expected to diminish, whilst the external net borrowing is projected to widen further to above 8 % of GDP in 2008. Inflation should decelerate from 3,5 % in 2005 to 2,25 % in 2008. Based on the Commission services' autumn 2005 forecasts, this macroeconomic scenario appears plausible, although the negative contribution of the external sector to growth could be larger, thus leading to a faster deterioration of the external position, and inflation could be higher. |
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(6)

GDP growth is projected at around 3,25 % over the programme period. GDP is projected to be sustained by domestic demand, though the growth of private and public consumption as well as residential construction is expected to slow down. The negative contribution of the external sector is expected to diminish, whilst the external net borrowing is projected to widen further to above 8 % of GDP in 2008. Inflation should decelerate from 3,5 % in 2005 to 2,25 % in 2008. Based on the Commission services' autumn 2005 forecasts, this macroeconomic scenario appears plausible, although the negative contribution of the external sector to growth could be larger, thus leading to a faster deterioration of the external position, and inflation could be higher.

| (7) | The update aims at (i) maintaining budgetary stability over the economic cycle, in line with the ongoing reform of the Budgetary Stability Laws, (ii) prioritising productive public expenditure and policies aimed at improving the quality of public finances, and (iii) ensuring the long-term sustainability of public finances as a necessary means of guaranteeing the sufficiency and sustainability of social spending. The general government budget balance surplus is envisaged to decline from 1 % of GDP in 2005 to about 0,5 % in 2008 The time profile of the primary surplus is similar, falling from 2,75 % in 2005 to 2 % in 2008. While, an announced, but not spelled out, direct tax reform would lower tax receipts by 0,5 % of GDP over the programme period, expenditures should remain broadly unchanged. The previous update projected smaller, albeit rising, surpluses. The difference between the two updates is to be found in a much better 2004 deficit outcome than projected one year earlier, with carry-over effects over the programme period. |
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(7)

The update aims at (i) maintaining budgetary stability over the economic cycle, in line with the ongoing reform of the Budgetary Stability Laws, (ii) prioritising productive public expenditure and policies aimed at improving the quality of public finances, and (iii) ensuring the long-term sustainability of public finances as a necessary means of guaranteeing the sufficiency and sustainability of social spending. The general government budget balance surplus is envisaged to decline from 1 % of GDP in 2005 to about 0,5 % in 2008 The time profile of the primary surplus is similar, falling from 2,75 % in 2005 to 2 % in 2008. While, an announced, but not spelled out, direct tax reform would lower tax receipts by 0,5 % of GDP over the programme period, expenditures should remain broadly unchanged. The previous update projected smaller, albeit rising, surpluses. The difference between the two updates is to be found in a much better 2004 deficit outcome than projected one year earlier, with carry-over effects over the programme period.

| (8) | According to the calculations carried out by the Commission services on the basis of the programme based on the commonly agreed methodology, the structural balance (i.e. the general government budget in cyclically-adjusted terms and net of one-off and other temporary measures) is estimated to attain a surplus of around 1,25 % of GDP, stable over 2005-2007. In 2008, it would decline to around 1 %, against the backdrop of a sharp reduction in the estimated negative output gap. The programme sets the medium-term objective (MTO) of a balanced budget in structural terms, and plans to maintain a structural balance that satisfies the programme's MTO by a large margin throughout the programme period. As regards appropriateness, the programme's MTO lies within the range indicated for euro area and ERM II Member States in the Stability and Growth Pact and the code of conduct and is more demanding than implied by the debt ratio and average potential output growth in the long term. |
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(8)

According to the calculations carried out by the Commission services on the basis of the programme based on the commonly agreed methodology, the structural balance (i.e. the general government budget in cyclically-adjusted terms and net of one-off and other temporary measures) is estimated to attain a surplus of around 1,25 % of GDP, stable over 2005-2007. In 2008, it would decline to around 1 %, against the backdrop of a sharp reduction in the estimated negative output gap. The programme sets the medium-term objective (MTO) of a balanced budget in structural terms, and plans to maintain a structural balance that satisfies the programme's MTO by a large margin throughout the programme period. As regards appropriateness, the programme's MTO lies within the range indicated for euro area and ERM II Member States in the Stability and Growth Pact and the code of conduct and is more demanding than implied by the debt ratio and average potential output growth in the long term.

| (9) | Overall, the risks to the budgetary targets seem broadly balanced. The budgetary projections in the update are based on plausible growth assumptions, below current estimates of potential GDP growth and in line with the Commission services' autumn 2005 forecasts. |
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(9)

Overall, the risks to the budgetary targets seem broadly balanced. The budgetary projections in the update are based on plausible growth assumptions, below current estimates of potential GDP growth and in line with the Commission services' autumn 2005 forecasts.

| (10) | In view of this risk assessment, the budgetary stance in the programme seems sufficient to maintain the programme's MTO until 2008, as envisaged in the programme. In addition, the budgetary stance provides a sufficient safety margin against breaching the 3 % of GDP threshold with normal macroeconomic fluctuations between 2005 and 2008. The fiscal policy stance is in line with the Stability and Growth Pact in the sense that it is not pro-cyclical. |
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(10)

In view of this risk assessment, the budgetary stance in the programme seems sufficient to maintain the programme's MTO until 2008, as envisaged in the programme. In addition, the budgetary stance provides a sufficient safety margin against breaching the 3 % of GDP threshold with normal macroeconomic fluctuations between 2005 and 2008. The fiscal policy stance is in line with the Stability and Growth Pact in the sense that it is not pro-cyclical.

| (11) | The debt ratio is projected to fall from 43 % of GDP in 2005 to 36 % of GDP in 2008, remaining well below the 60 % of GDP Treaty reference value. The projected high primary balance surpluses in the programme are the main drivers of debt reduction. Overall, the debt reduction path projected in the update appears plausible. |
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(11)

The debt ratio is projected to fall from 43 % of GDP in 2005 to 36 % of GDP in 2008, remaining well below the 60 % of GDP Treaty reference value. The projected high primary balance surpluses in the programme are the main drivers of debt reduction. Overall, the debt reduction path projected in the update appears plausible.

| (12) | With regard to the sustainability of public finances, Spain appears to be at medium risk on grounds of the projected budgetary costs of ageing populations. The currently favourable budgetary position, including the debt position and accumulation of assets in the Social Security Reserve Fund, contribute to absorb somewhat the projected increase of pension expenditures. However, the significant increase in these expenditures over the projection period suggests that the implementation of the measures within the announced social welfare reform aimed at containing the budgetary impact of ageing, notably concerning pensions, could be an important element in reducing risks to the sustainability of public finances. |
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(12)

With regard to the sustainability of public finances, Spain appears to be at medium risk on grounds of the projected budgetary costs of ageing populations. The currently favourable budgetary position, including the debt position and accumulation of assets in the Social Security Reserve Fund, contribute to absorb somewhat the projected increase of pension expenditures. However, the significant increase in these expenditures over the projection period suggests that the implementation of the measures within the announced social welfare reform aimed at containing the budgetary impact of ageing, notably concerning pensions, could be an important element in reducing risks to the sustainability of public finances.

| (13) | The envisaged measures in the area of public finances are broadly consistent with the broad economic policy guidelines included in the integrated guidelines for the period 2005-2008. In particular, the fiscal stance in the programme ensures the respect of the medium-term budgetary objective, avoids pro-cyclicality and should help address the risks associated with external imbalances. The budgetary strategy gives priority to measures aimed at enhancing productivity and encouraging accumulation of physical, human and knowledge capital. A broad package of reforms of the social security system was submitted to the social partners on 10 November 2005. |
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(13)

The envisaged measures in the area of public finances are broadly consistent with the broad economic policy guidelines included in the integrated guidelines for the period 2005-2008. In particular, the fiscal stance in the programme ensures the respect of the medium-term budgetary objective, avoids pro-cyclicality and should help address the risks associated with external imbalances. The budgetary strategy gives priority to measures aimed at enhancing productivity and encouraging accumulation of physical, human and knowledge capital. A broad package of reforms of the social security system was submitted to the social partners on 10 November 2005.

| (14) | The National Reform Programme of Spain, submitted on 13 October 2005 in the context of the renewed Lisbon strategy for growth and jobs, identifies the following challenges with significant implications for public finances: (i) the reduction of the debt-to-GDP ratio to 34 % in 2010, and (ii) the relative increase of productive spending (such as infrastructure, R&D, better education and human capital). The budgetary implications of the actions outlined in the National Reform Programme are sufficiently reflected in the budgetary projections of the updated stability programme. The measures in the area of public finances envisaged in the stability programme are in line with the actions foreseen in the National Reform Programme. |
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(14)

The National Reform Programme of Spain, submitted on 13 October 2005 in the context of the renewed Lisbon strategy for growth and jobs, identifies the following challenges with significant implications for public finances: (i) the reduction of the debt-to-GDP ratio to 34 % in 2010, and (ii) the relative increase of productive spending (such as infrastructure, R&D, better education and human capital). The budgetary implications of the actions outlined in the National Reform Programme are sufficiently reflected in the budgetary projections of the updated stability programme. The measures in the area of public finances envisaged in the stability programme are in line with the actions foreseen in the National Reform Programme.

In view of the above assessment, the Council notes that, overall, the budgetary position is sound and the budgetary strategy provides a good example of fiscal policies conducted in compliance with the Pact. Maintaining a strong budgetary position is important in the light of rising external imbalances. The Council invites Spain to implement the envisaged measures to address the long-term budgetary implications of ageing populations.

Comparison of key macroeconomic and budgetary projections

| | 2004 | 2005 | 2006 | 2007 | 2008 |
| --- | --- | --- | --- | --- | --- |
| Real GDP
  (% change) | SP Dec 2005 | 3,1 | 3,4 | 3,3 | 3,2 | 3,2 |
| COM Nov 2005 (6) | 3,1 | 3,4 | 3,2 | 3,0 | n.a. |
| SP Dec 2004 | 2,6 | 2,9 | 3,0 | 3,0 | 3,0 |
| HICP inflation (7)

  (%) | SP Dec 2005 (7) | 3,4 | 3,4 | 2,8 | 2,5 | 2,2 |
| COM Nov 2005 | 3,4 | 3,7 | 3,4 | 2,9 | n.a. |
| SP Dec 2004 | 3,0 | 3,1 | 2,9 | 2,7 | 2,4 |
| Output gap
  (% of potential GDP) | SP Dec 2005 (3) | 0,0 | – 0,5 | – 0,8 | – 1,1 | – 0,7 |
| COM Nov 2005 | 0,2 | 0,0 | – 0,2 | – 0,5 | n.a. |
| SP Dec 2004 (3) | – 0,2 | – 0,2 | – 0,2 | – 0,2 | – 0,1 |
| General government balance
  (% of GDP) | SP Dec 2005 | – 0,1 | 1,0 | 0,9 | 0,7 | 0,6 |
| COM Nov 2005 | – 0,3 | 0,2 | 0,1 | – 0,4 | n.a. |
| SP Dec 2004 | – 0,8 | 0,1 | 0,2 | 0,4 | 0,4 |
| Primary balance
  (% of GDP) | SP Dec 2005 | 1,9 | 2,8 | 2,6 | 2,2 | 2,0 |
| COM Nov 2005 | 2,0 | 2,1 | 1,9 | 1,3 | n.a. |
| SP Dec 2004 | 1,5 | 2,2 | 2,2 | 2,3 | 2,3 |
| Cyclically-adjusted balance
  (% of GDP) | SP Dec 2005 (3) | – 0,1 | 1,2 | 1,2 | 1,2 | 0,9 |
| COM Nov 2005 | – 0,3 | 0,2 | 0,2 | – 0,1 | n.a. |
| SP Dec 2004 (3) | – 0,7 | 0,2 | 0,3 | 0,5 | 0,4 |
| Structural balance (4)

  (% of GDP) | SP Dec 2005 (5) | 0,7 | 1,2 | 1,2 | 1,2 | 0,9 |
| COM Nov 2005 (5) | 0,5 | 0,2 | 0,2 | – 0,1 | n.a. |
| SP Dec 2004 (5) | 0,1 | 0,2 | 0,3 | 0,5 | 0,4 |
| Government gross debt
  (% of GDP) | SP Dec 2005 | 46,6 | 43,1 | 40,3 | 38,0 | 36,0 |
| COM Nov 2005 | 46,9 | 44,2 | 41,9 | 40,7 | n.a. |
| SP Dec 2004 | 49,1 | 46,7 | 44,3 | 42,0 | 40,0 |
| Stability programme (SP); Commission services' autumn 2005 economic forecasts (COM); Commission services' calculations. |

2004

2005

2006

2007

2008

Real GDP

(% change)

SP Dec 2005

3,1

3,4

3,3

3,2

3,2

COM Nov 2005 (6)

3,1

3,4

3,2

3,0

n.a.

SP Dec 2004

2,6

2,9

3,0

3,0

3,0

HICP inflation (7)

(%)

SP Dec 2005 (7)

3,4

3,4

2,8

2,5

2,2

COM Nov 2005

3,4

3,7

3,4

2,9

n.a.

SP Dec 2004

3,0

3,1

2,9

2,7

2,4

Output gap

(% of potential GDP)

SP Dec 2005 (3)

0,0

– 0,5

– 0,8

– 1,1

– 0,7

COM Nov 2005

0,2

0,0

– 0,2

– 0,5

n.a.

SP Dec 2004 (3)

– 0,2

– 0,2

– 0,2

– 0,2

– 0,1

General government balance

(% of GDP)

SP Dec 2005

– 0,1

1,0

0,9

0,7

0,6

COM Nov 2005

– 0,3

0,2

0,1

– 0,4

n.a.

SP Dec 2004

– 0,8

0,1

0,2

0,4

0,4

Primary balance

(% of GDP)

SP Dec 2005

1,9

2,8

2,6

2,2

2,0

COM Nov 2005

2,0

2,1

1,9

1,3

n.a.

SP Dec 2004

1,5

2,2

2,2

2,3

2,3

Cyclically-adjusted balance

(% of GDP)

SP Dec 2005 (3)

– 0,1

1,2

1,2

1,2

0,9

COM Nov 2005

– 0,3

0,2

0,2

– 0,1

n.a.

SP Dec 2004 (3)

– 0,7

0,2

0,3

0,5

0,4

Structural balance (4)

(% of GDP)

SP Dec 2005 (5)

0,7

1,2

1,2

1,2

0,9

COM Nov 2005 (5)

0,5

0,2

0,2

– 0,1

n.a.

SP Dec 2004 (5)

0,1

0,2

0,3

0,5

0,4

Government gross debt

(% of GDP)

SP Dec 2005

46,6

43,1

40,3

38,0

36,0

COM Nov 2005

46,9

44,2

41,9

40,7

n.a.

SP Dec 2004

49,1

46,7

44,3

42,0

40,0

Stability programme (SP); Commission services' autumn 2005 economic forecasts (COM); Commission services' calculations.

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(1)  OJ L 209, 2.8.1997, p. 1. Regulation as amended by Regulation (EC) No 1055/2005 (OJ L 174, 7.7.2005, p. 1). The documents referred to in this text can be found at the following website:

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

(2)  The programme has gaps in the compulsory data (interest rates, collective consumption and total social transfers projections) and does not provide all optional data prescribed by the new code of conduct.

(3)  Commission services' calculations on the basis of the information in the programme.

(4)  Cyclically-adjusted balance (as in the previous rows) excluding one-off and other temporary measures.

(5)  One-off and other temporary measures taken from the programme (assumption of the national railway company RENFE debt, 0.7% of GDP, and public television RTVE, 0.1% of GDP, in year 2004).

(6)  According to first estimates, growth was 3.4% in 2005. The Commission services' interim forecast of 21 February 2006 projects growth of 3.1% in 2006.

(7)  Private consumption deflator.

Source:

Stability programme (SP); Commission services' autumn 2005 economic forecasts (COM); Commission services' calculations.

---

| 5.4.2006 | EN | Official Journal of the European Union | C 82/14 |
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5.4.2006

EN

Official Journal of the European Union

C 82/14

---

COUNCIL OPINION

of 14 March 2006

on the updated stability programme of France, 2005-2009

(2006/C 82/04)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community,

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 14 March 2006 the Council examined the updated stability programme of France, which covers the period 2005 to 2009. |
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(1)

On 14 March 2006 the Council examined the updated stability programme of France, which covers the period 2005 to 2009.

| (2) | French GDP growth was over the last 10 years close to the euro-area average at 2,3 %. Since 1998 it was about half a percentage point higher, sustained by relatively buoyant domestic demand. Despite the relatively good performance over this period, the employment rate increased only slightly and the unemployment rate remained high, although it recently diminished, from 10,2 % in March 2005 to 9,5 % in January 2006. Following a record deficit level of 6 % of GDP in 1993, the budgetary situation improved and the 3 % of GDP Treaty reference value was respected from 1997 onwards. However, the reference value was breached again from 2002 onwards as the budgetary situation deteriorated, which was partly due to the slowdown in growth. Since 2004, the deficit ratio has been declining. |
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(2)

French GDP growth was over the last 10 years close to the euro-area average at 2,3 %. Since 1998 it was about half a percentage point higher, sustained by relatively buoyant domestic demand. Despite the relatively good performance over this period, the employment rate increased only slightly and the unemployment rate remained high, although it recently diminished, from 10,2 % in March 2005 to 9,5 % in January 2006. Following a record deficit level of 6 % of GDP in 1993, the budgetary situation improved and the 3 % of GDP Treaty reference value was respected from 1997 onwards. However, the reference value was breached again from 2002 onwards as the budgetary situation deteriorated, which was partly due to the slowdown in growth. Since 2004, the deficit ratio has been declining.

| (3) | On 3 June 2003, the Council decided that France was in excessive deficit and recommended based on Article 104(7) that the excessive deficit be corrected by 2004. In its Communication to the Council of December 2004 on ‘the situation of Germany and France in relation to their obligations under the excessive deficit procedure following the judgement of the Court of Justice’, the Commission concluded that 2005 should be considered as the relevant deadline for the correction. In January 2005, the Council concurred with this view. In its opinion of 17 February 2005 on the December 2004 update of the stability programme, covering the period 2004-2008, the Council invited France to do the necessary to ensure the correction of the excessive deficit in 2005 and the continued budgetary consolidation thereafter and to implement structural reforms and control expenditure in order to secure the respect of the multi-annual expenditure targets. |
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(3)

On 3 June 2003, the Council decided that France was in excessive deficit and recommended based on Article 104(7) that the excessive deficit be corrected by 2004. In its Communication to the Council of December 2004 on ‘the situation of Germany and France in relation to their obligations under the excessive deficit procedure following the judgement of the Court of Justice’, the Commission concluded that 2005 should be considered as the relevant deadline for the correction. In January 2005, the Council concurred with this view. In its opinion of 17 February 2005 on the December 2004 update of the stability programme, covering the period 2004-2008, the Council invited France to do the necessary to ensure the correction of the excessive deficit in 2005 and the continued budgetary consolidation thereafter and to implement structural reforms and control expenditure in order to secure the respect of the multi-annual expenditure targets.

| (4) | As regards budgetary implementation in 2005, the general government deficit was estimated at 3,2 % of GDP in the Commission services' autumn 2005 forecast, against a target of 2,9 % of GDP set in the previous update and 3 % of GDP in this update. Despite less favourable macroeconomic conditions compared to the previous programme, recent partial information suggests that the deficit in 2005 is likely to have been reduced to around 3 % of GDP notably thanks to better control of public expenditure, a strong performance of non-fiscal receipts and taxes based on asset prices, and additional revenues in end-December linked to a change in the corporate tax legislation. It should also be noted that the deficit reduction in 2005 included substantial one-offs. |
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(4)

As regards budgetary implementation in 2005, the general government deficit was estimated at 3,2 % of GDP in the Commission services' autumn 2005 forecast, against a target of 2,9 % of GDP set in the previous update and 3 % of GDP in this update. Despite less favourable macroeconomic conditions compared to the previous programme, recent partial information suggests that the deficit in 2005 is likely to have been reduced to around 3 % of GDP notably thanks to better control of public expenditure, a strong performance of non-fiscal receipts and taxes based on asset prices, and additional revenues in end-December linked to a change in the corporate tax legislation. It should also be noted that the deficit reduction in 2005 included substantial one-offs.

| (5) | The programme broadly follows the model structure and data provision requirements for stability and convergence programmes specified in the new code of conduct (2). The update was submitted 6 weeks beyond the 1 December deadline set in the code of conduct, reflecting the authorities' wish to incorporate some of the ‘Pébereau report’ (3) proposals for debt-reduction in their intensified debt-reduction strategy. |
| --- | --- |

(5)

The programme broadly follows the model structure and data provision requirements for stability and convergence programmes specified in the new code of conduct (2). The update was submitted 6 weeks beyond the 1 December deadline set in the code of conduct, reflecting the authorities' wish to incorporate some of the ‘Pébereau report’ (3) proposals for debt-reduction in their intensified debt-reduction strategy.

| (6) | The programme contains two different scenarios for the macroeconomic and budgetary projections: a ‘low growth’ scenario and a ‘high growth’ scenario. The ‘low growth’ scenario is considered as the reference scenario for assessing budgetary projections because, considered against currently available information, it appears to be based on plausible growth assumptions. It envisages that real GDP growth will pick up from 1,5 % –2,0 % in 2005 and to 2,25 % on average over the rest of the programme period. The programme's projections for inflation also appear realistic. |
| --- | --- |

(6)

The programme contains two different scenarios for the macroeconomic and budgetary projections: a ‘low growth’ scenario and a ‘high growth’ scenario. The ‘low growth’ scenario is considered as the reference scenario for assessing budgetary projections because, considered against currently available information, it appears to be based on plausible growth assumptions. It envisages that real GDP growth will pick up from 1,5 % –2,0 % in 2005 and to 2,25 % on average over the rest of the programme period. The programme's projections for inflation also appear realistic.

| (7) | The update aims at bringing the public accounts back to balance and reducing the public debt-to-GDP ratio below the 60 % reference value by 2010. It also confirms that the deficit should be brought back to the 3 % reference value in 2005 and below it from 2006 onwards. Over the programme period, a reduction by 2 percentage points of GDP in the general government deficit to 1,0 % of GDP in 2009 is foreseen. A primary surplus would be restored from 2007 onwards. As in previous updates, the planned consolidation is expenditure-driven. The medium-term strategy is based on multi-annual targets for the increase in government expenditures in real terms that imply a reduction of the expenditure-to-GDP ratio. Compared with the previous programme, the planned deficit reduction has been postponed in the new update, partly reflecting a less favourable macroeconomic scenario and frontloaded tax reductions. One-off measures will still have a deficit-reducing effect in 2006, but to a lesser extent than in 2005. |
| --- | --- |

(7)

The update aims at bringing the public accounts back to balance and reducing the public debt-to-GDP ratio below the 60 % reference value by 2010. It also confirms that the deficit should be brought back to the 3 % reference value in 2005 and below it from 2006 onwards. Over the programme period, a reduction by 2 percentage points of GDP in the general government deficit to 1,0 % of GDP in 2009 is foreseen. A primary surplus would be restored from 2007 onwards. As in previous updates, the planned consolidation is expenditure-driven. The medium-term strategy is based on multi-annual targets for the increase in government expenditures in real terms that imply a reduction of the expenditure-to-GDP ratio. Compared with the previous programme, the planned deficit reduction has been postponed in the new update, partly reflecting a less favourable macroeconomic scenario and frontloaded tax reductions. One-off measures will still have a deficit-reducing effect in 2006, but to a lesser extent than in 2005.

| (8) | Over the programme period, the structural balance (i.e. the cyclically-adjusted balance net of one-off and other temporary measures) calculated according to the commonly agreed methodology is planned to improve on average by 0,6 % of GDP per year. The authorities set the medium-term objective (MTO) for the budgetary position at a structural balance, which they do not aim to achieve within the programme period but by 2010. As it is more demanding than the minimum benchmark (estimated at a deficit of around 1,5 % of GDP), its achievement should fulfil the aim of providing a safety margin against the occurrence of an excessive deficit. The programme's MTO lies within the range indicated for euro area and ERM II Member States in the Stability and Growth Pact and the code of conduct and adequately reflects the debt ratio and average potential output growth in the long term. |
| --- | --- |

(8)

Over the programme period, the structural balance (i.e. the cyclically-adjusted balance net of one-off and other temporary measures) calculated according to the commonly agreed methodology is planned to improve on average by 0,6 % of GDP per year. The authorities set the medium-term objective (MTO) for the budgetary position at a structural balance, which they do not aim to achieve within the programme period but by 2010. As it is more demanding than the minimum benchmark (estimated at a deficit of around 1,5 % of GDP), its achievement should fulfil the aim of providing a safety margin against the occurrence of an excessive deficit. The programme's MTO lies within the range indicated for euro area and ERM II Member States in the Stability and Growth Pact and the code of conduct and adequately reflects the debt ratio and average potential output growth in the long term.

| (9) | The budgetary outcome could be worse than projected in the programme. Concerning 2006, the downside risks stem from the macroeconomic scenario and from the fact that revenues could be lower and expenditures in the areas of local administration and healthcare higher. For the rest of the period, the ambitious targets set in the update are welcome. The enhancement of expenditure-growth rules at the different levels of the general government will improve the oversight of public finance and raise the accountability of all public stakeholders for spending control. The strong grip on state expenditure and the recent enhancement of the enforcement mechanisms on health expenditure are welcome, such as the creation of a permanent committee gathering all stakeholders of public finances, which would be responsible for drafting proposals for public expenditure control and debt reduction. However, expenditure control will have to be strictly implemented, given the track record related to the achievement of overall budget balance objectives. The new targets imply a drastic expenditure restraint compared to previous targets, which will require large structural reforms to be further detailed, especially concerning local authorities. |
| --- | --- |

(9)

The budgetary outcome could be worse than projected in the programme. Concerning 2006, the downside risks stem from the macroeconomic scenario and from the fact that revenues could be lower and expenditures in the areas of local administration and healthcare higher. For the rest of the period, the ambitious targets set in the update are welcome. The enhancement of expenditure-growth rules at the different levels of the general government will improve the oversight of public finance and raise the accountability of all public stakeholders for spending control. The strong grip on state expenditure and the recent enhancement of the enforcement mechanisms on health expenditure are welcome, such as the creation of a permanent committee gathering all stakeholders of public finances, which would be responsible for drafting proposals for public expenditure control and debt reduction. However, expenditure control will have to be strictly implemented, given the track record related to the achievement of overall budget balance objectives. The new targets imply a drastic expenditure restraint compared to previous targets, which will require large structural reforms to be further detailed, especially concerning local authorities.

| (10) | If the risks mentioned above were to materialise, a permanent and sustainable reduction of the deficit below 3 % of GDP would require additional measures in 2006. The planned structural adjustment in 2006 is slightly below 0,5 % of GDP in structural terms. Thereafter, the pace of the adjustment towards the MTO implied by the programme is in line with the Stability and Growth Pact, which specifies that, for euro area and ERM II Member States, the annual improvement in the structural balance should be 0,5 % of GDP as a benchmark. Nevertheless, if the above risks materialise, reaching the MTO by 2010 is not ensured. The budgetary stance in the programme seems to provide a sufficient safety margin against breaching the 3 % of GDP deficit threshold with normal macroeconomic fluctuations at the end of the programme period. |
| --- | --- |

(10)

If the risks mentioned above were to materialise, a permanent and sustainable reduction of the deficit below 3 % of GDP would require additional measures in 2006. The planned structural adjustment in 2006 is slightly below 0,5 % of GDP in structural terms. Thereafter, the pace of the adjustment towards the MTO implied by the programme is in line with the Stability and Growth Pact, which specifies that, for euro area and ERM II Member States, the annual improvement in the structural balance should be 0,5 % of GDP as a benchmark. Nevertheless, if the above risks materialise, reaching the MTO by 2010 is not ensured. The budgetary stance in the programme seems to provide a sufficient safety margin against breaching the 3 % of GDP deficit threshold with normal macroeconomic fluctuations at the end of the programme period.

| (11) | The debt ratio is estimated to have reached 66 % of GDP in 2005, above the 60 % of GDP Treaty reference value. The programme projects the debt ratio to decline by 3 percentage points over the programme period. The evolution of the debt ratio might be less favourable than projected in the programme, notably given the risks to the budgetary targets mentioned above. In view of this risk assessment, the debt ratio may not be sufficiently diminishing towards the reference value. However, the government recently announced that any extra tax receipts related to growth would be devoted to the deficit reduction, which is welcome. |
| --- | --- |

(11)

The debt ratio is estimated to have reached 66 % of GDP in 2005, above the 60 % of GDP Treaty reference value. The programme projects the debt ratio to decline by 3 percentage points over the programme period. The evolution of the debt ratio might be less favourable than projected in the programme, notably given the risks to the budgetary targets mentioned above. In view of this risk assessment, the debt ratio may not be sufficiently diminishing towards the reference value. However, the government recently announced that any extra tax receipts related to growth would be devoted to the deficit reduction, which is welcome.

| (12) | With regard to the sustainability of public finances, France appears to be at medium risk on grounds of the projected budgetary costs of ageing populations. Recent reforms, notably the 2003 pension reform, have substantially helped to contain future rise in public expenditure and their full implementation will be crucial to ensure the expected results. The current level of government gross debt is above the Treaty value of 60 % of GDP, and the currently high structural deficit, if unchanged, will prevent the necessary reduction of debt in view of the future cost of ageing. Therefore, in the absence of additional reforms, strong budgetary consolidation is needed in order to reduce the risks to long-term sustainability. |
| --- | --- |

(12)

With regard to the sustainability of public finances, France appears to be at medium risk on grounds of the projected budgetary costs of ageing populations. Recent reforms, notably the 2003 pension reform, have substantially helped to contain future rise in public expenditure and their full implementation will be crucial to ensure the expected results. The current level of government gross debt is above the Treaty value of 60 % of GDP, and the currently high structural deficit, if unchanged, will prevent the necessary reduction of debt in view of the future cost of ageing. Therefore, in the absence of additional reforms, strong budgetary consolidation is needed in order to reduce the risks to long-term sustainability.

| (13) | The envisaged measures in the area of public finances are broadly consistent with the broad economic policy guidelines included in the integrated guidelines for the period 2005-2008. In particular, France plans to implement a number of structural reforms in order to secure the deceleration in government expenditures and improve the sustainability of government finances in the medium to long run, while the correction of the excessive deficit may require additional measures. |
| --- | --- |

(13)

The envisaged measures in the area of public finances are broadly consistent with the broad economic policy guidelines included in the integrated guidelines for the period 2005-2008. In particular, France plans to implement a number of structural reforms in order to secure the deceleration in government expenditures and improve the sustainability of government finances in the medium to long run, while the correction of the excessive deficit may require additional measures.

| (14) | France's National Reform Programme (NRP), submitted on 7 November 2005 within the context of the renewed Lisbon strategy for growth and jobs, identifies three main priorities: (a) to create the necessary conditions for strong economic growth including sustainable public finances, (b) to reduce unemployment and increase employment and (c) to build a knowledge-based economy. Similarly, the improvement of potential output — notably thanks to the so-called emergency plan for employment and other labour market reforms — is one of the three pillars of the French budgetary strategy mentioned in the update. Overall, the measures in the area of public finances envisaged in the stability programme are broadly in line with the actions foreseen in the National Reform Programme. The stability programme complements these measures with changes in the institutional features of the public finances, namely a definition and enhancement of expenditure-growth rules to all levels of the sub-sectors of the general government and the set-up of a basis of a better coordination among stakeholders. However, not all budgetary implications of the actions outlined in the NRP are sufficiently detailed in the budgetary projections of the stability programme. |
| --- | --- |

(14)

France's National Reform Programme (NRP), submitted on 7 November 2005 within the context of the renewed Lisbon strategy for growth and jobs, identifies three main priorities: (a) to create the necessary conditions for strong economic growth including sustainable public finances, (b) to reduce unemployment and increase employment and (c) to build a knowledge-based economy. Similarly, the improvement of potential output — notably thanks to the so-called emergency plan for employment and other labour market reforms — is one of the three pillars of the French budgetary strategy mentioned in the update. Overall, the measures in the area of public finances envisaged in the stability programme are broadly in line with the actions foreseen in the National Reform Programme. The stability programme complements these measures with changes in the institutional features of the public finances, namely a definition and enhancement of expenditure-growth rules to all levels of the sub-sectors of the general government and the set-up of a basis of a better coordination among stakeholders. However, not all budgetary implications of the actions outlined in the NRP are sufficiently detailed in the budgetary projections of the stability programme.

In view of the above assessment, the Council welcomes the priority given to debt reduction in the French stability programme but notes that there are risks linked to the achievement of the budgetary targets and to long-term sustainability of public finances. Also in the light of the Commission's communication of December 2004 endorsed by the Council in January 2005, the Council invites France to:

| — | Ensure the necessary structural adjustment to bring the general government deficit below 3 % of GDP in 2006 in a credible and sustainable manner; |
| --- | --- |

—

Ensure the necessary structural adjustment to bring the general government deficit below 3 % of GDP in 2006 in a credible and sustainable manner;

| — | Take the necessary measures to ensure the planned fiscal consolidation towards the medium-term objective and improve long-term sustainability; and |
| --- | --- |

—

Take the necessary measures to ensure the planned fiscal consolidation towards the medium-term objective and improve long-term sustainability; and

| — | Strengthen the monitoring and enforcement of expenditure rules defined for the sub-sectors of the general government so as to ensure the respect of the ambitious multi-annual expenditure ceilings. |
| --- | --- |

—

Strengthen the monitoring and enforcement of expenditure rules defined for the sub-sectors of the general government so as to ensure the respect of the ambitious multi-annual expenditure ceilings.

Comparison of key macroeconomic and budgetary projections

| | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 |
| --- | --- | --- | --- | --- | --- | --- |
| Real GDP
  (% change) | SP Jan 2006 (5) | 2,3 | 1,5–2,0 | 2,0–2,5 | 2,25 | 2,25 | 2,25 |
| COM Nov 2005 (11) | 2,3 | 1,5 | 1,8 | 2,3 | n.a. | n.a. |
| SP Dec 2004 | 2,5 | 2,5 | 2,5 | 2,5 | 2,5 | n.a. |
| HICP inflation
  (%) | SP Jan 2006 (4) | 2,3 | 1,9 | 1,8 | 1,75 | 1,75 | 1,75 |
| COM Nov 2005 | 2,3 | 2,0 | 2,1 | 1,9 | n.a. | n.a. |
| SP Dec 2004 (10) | 2,2 | 1,8 | 1,5 | 1,5 | 1,5 | n.a. |
| Output gap
  (% of potential GDP) | SP Jan 2006 (5) | – 0,3 | – 0,5 | – 0,4 | – 0,6 | – 0,8 | – 0,9 |
| COM Nov 2005 (9) | – 0,2 | – 0,5 | – 0,9 | – 1,0 | n.a. | n.a. |
| SP Dec 2004 | – 0,5 | – 0,4 | – 0,4 | – 0,4 | – 0,4 | n.a. |
| General government balance
  (% of GDP) | SP Jan 2006 | – 3,7 | – 3,0 | – 2,9 | – 2,6 | – 1,9 | – 1,0 |
| COM Nov 2005 | – 3,7 | – 3,2 | – 3,5 | – 3,5 | n.a. | n.a. |
| SP Dec 2004 | – 3,6 | – 2,9 | – 2,2 | – 1,6 | – 0,9 | n.a. |
| Primary balance
  (% of GDP) | SP Jan 2006 | – 0,8 | – 0,3 | – 0,3 | 0,0 | 0,6 | 1,6 |
| COM Nov 2005 | – 0,8 | – 0,5 | – 0,7 | – 0,7 | n.a. | n.a. |
| SP Dec 2004 | – 0,7 | 0,1 | 0,8 | 1,5 | 2,2 | n.a. |
| Cyclically-adjusted balance
  (% of GDP) | SP Jan 2006 (5) | – 3,5 | – 2,8 | – 2,7 | – 2,3 | – 1,5 | – 0,6 |
| COM Nov 2005 | – 3,6 | – 3,0 | – 3,0 | – 3,1 | n.a. | n.a. |
| SP Dec 2004 (6) | – 3,4 | – 2,7 | – 2,0 | – 1,4 | – 0,7 | n.a. |
| Structural balance (5)

  (% of GDP) | SP Jan 2006 (7) | – 3,5 | – 3,3 | – 2,9 | – 2,3 | – 1,5 | – 0,6 |
| COM Nov 2005 (8) | – 3,6 | – 3,5 | – 3,3 | – 3,1 | n.a. | n.a. |
| SP Dec 2004 | n.a. | n.a. | n.a. | n.a. | n.a. | n.a. |
| Government gross debt
  (% of GDP) | SP Jan 2006 | 65,1 | 65,8 | 66,0 | 65,6 | 64,6 | 62,8 |
| COM Nov 2005 | 65,1 | 66,5 | 67,1 | 68,0 | n.a. | n.a. |
| SP Dec 2004 | 64,8 | 65,0 | 64,6 | 63,6 | 62,0 | n.a. |
| Stability programme (SP); Commission services' autumn 2005 economic forecasts (COM); Commission services' calculations. |

2004

2005

2006

2007

2008

2009

Real GDP

(% change)

SP Jan 2006 (5)

2,3

1,5–2,0

2,0–2,5

2,25

2,25

2,25

COM Nov 2005 (11)

2,3

1,5

1,8

2,3

n.a.

n.a.

SP Dec 2004

2,5

2,5

2,5

2,5

2,5

n.a.

HICP inflation

(%)

SP Jan 2006 (4)

2,3

1,9

1,8

1,75

1,75

1,75

COM Nov 2005

2,3

2,0

2,1

1,9

n.a.

n.a.

SP Dec 2004 (10)

2,2

1,8

1,5

1,5

1,5

n.a.

Output gap

(% of potential GDP)

SP Jan 2006 (5)

– 0,3

– 0,5

– 0,4

– 0,6

– 0,8

– 0,9

COM Nov 2005 (9)

– 0,2

– 0,5

– 0,9

– 1,0

n.a.

n.a.

SP Dec 2004

– 0,5

– 0,4

– 0,4

– 0,4

– 0,4

n.a.

General government balance

(% of GDP)

SP Jan 2006

– 3,7

– 3,0

– 2,9

– 2,6

– 1,9

– 1,0

COM Nov 2005

– 3,7

– 3,2

– 3,5

– 3,5

n.a.

n.a.

SP Dec 2004

– 3,6

– 2,9

– 2,2

– 1,6

– 0,9

n.a.

Primary balance

(% of GDP)

SP Jan 2006

– 0,8

– 0,3

– 0,3

0,0

0,6

1,6

COM Nov 2005

– 0,8

– 0,5

– 0,7

– 0,7

n.a.

n.a.

SP Dec 2004

– 0,7

0,1

0,8

1,5

2,2

n.a.

Cyclically-adjusted balance

(% of GDP)

SP Jan 2006 (5)

– 3,5

– 2,8

– 2,7

– 2,3

– 1,5

– 0,6

COM Nov 2005

– 3,6

– 3,0

– 3,0

– 3,1

n.a.

n.a.

SP Dec 2004 (6)

– 3,4

– 2,7

– 2,0

– 1,4

– 0,7

n.a.

Structural balance (5)

(% of GDP)

SP Jan 2006 (7)

– 3,5

– 3,3

– 2,9

– 2,3

– 1,5

– 0,6

COM Nov 2005 (8)

– 3,6

– 3,5

– 3,3

– 3,1

n.a.

n.a.

SP Dec 2004

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

Government gross debt

(% of GDP)

SP Jan 2006

65,1

65,8

66,0

65,6

64,6

62,8

COM Nov 2005

65,1

66,5

67,1

68,0

n.a.

n.a.

SP Dec 2004

64,8

65,0

64,6

63,6

62,0

n.a.

Stability programme (SP); Commission services' autumn 2005 economic forecasts (COM); Commission services' calculations.

---

(1)  OJ L 209, 2.8.1997, p. 1. Regulation as amended by Regulation (EC) No 1055/2005 (OJ L 174, 7.7.2005, p. 1). The documents referred to in this text can be found at the following website:

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

(2)  The programme has gaps in the compulsory data, and optional data prescribed by the new code of conduct are missing. Missing compulsory data mainly concern short and long-term interest rate assumptions. Missing optional data mainly concern the general government expenditure by function and data on long-term sustainability of public finance as well as labour market developments.

(3)  Report from an independent committee appointed by the French government to analyse the public debt and to determine debt-reduction possibilities, published in mid-December 2005.

(4)  For further calculations, the corresponding point estimate has been used.

(5)  Commission services' calculations on the basis of the information in the programme.

(6)  Cyclically-adjusted balance (as in the previous rows) excluding one-off and other temporary measures.

(7)  One-off and other temporary measures as calculated by the Commission services (0.6% of GDP in 2005 (the apparent smaller difference between the structural and the cyclically-adjusted is due to rounding effect), 0.2% of GDP in 2006; all deficit-reducing).

(8)  One-off and other temporary measures taken from the Commission services' autumn 2005 forecast (0.5% of GDP in 2005 and 0.2% in 2006; all deficit-reducing).

(9)  Based on estimated potential growth of 2.3% in 2004, 1.9% in 2005, 2.2% in 2006 and 2.4% for the period 2007-2009.

(10)  CPI change instead of HICP.

(11)  According to first estimates, growth was 1.4% in 2005. The Commission services' interim forecast of 21 February 2006 projects growth of 1.9% in 2006.

Source:

Stability programme (SP); Commission services' autumn 2005 economic forecasts (COM); Commission services' calculations.

---

| 5.4.2006 | EN | Official Journal of the European Union | C 82/19 |
| --- | --- | --- | --- |

5.4.2006

EN

Official Journal of the European Union

C 82/19

---

COUNCIL OPINION

of 14 March 2006

on the updated stability programme of Ireland, 2005-2008

(2006/C 82/05)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community,

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 14 March 2006 the Council examined the updated stability programme of Ireland, which covers the period 2005 to 2008. |
| --- | --- |

(1)

On 14 March 2006 the Council examined the updated stability programme of Ireland, which covers the period 2005 to 2008.

| (2) | Ireland has experienced an impressively rapid increase in real GDP per capita and employment levels over the last decade. In recent years the Irish economy has continued to grow at just below 5 % p.a., the highest rate in the euro area, while employment is on the rise and inflation has converged rapidly towards the euro-area average. As regards budgetary developments, the fiscal position has been broadly sound, with the general government balance recording surpluses in most years over the last decade and the debt ratio falling significantly (to under 30 % of GDP in 2005). |
| --- | --- |

(2)

Ireland has experienced an impressively rapid increase in real GDP per capita and employment levels over the last decade. In recent years the Irish economy has continued to grow at just below 5 % p.a., the highest rate in the euro area, while employment is on the rise and inflation has converged rapidly towards the euro-area average. As regards budgetary developments, the fiscal position has been broadly sound, with the general government balance recording surpluses in most years over the last decade and the debt ratio falling significantly (to under 30 % of GDP in 2005).

| (3) | In its opinion of 17 February 2005, the Council endorsed the budgetary strategy presented in the previous update of the stability programme, covering the period 2004-2007. As regards budgetary implementation in 2005, the previous update targeted a general government deficit of 0,8 % of GDP, while the current update estimates a 0,3 % surplus despite a downward revision of growth. The main reason for the far better outcome in 2005 than initially targeted is to be found on the revenue side. |
| --- | --- |

(3)

In its opinion of 17 February 2005, the Council endorsed the budgetary strategy presented in the previous update of the stability programme, covering the period 2004-2007. As regards budgetary implementation in 2005, the previous update targeted a general government deficit of 0,8 % of GDP, while the current update estimates a 0,3 % surplus despite a downward revision of growth. The main reason for the far better outcome in 2005 than initially targeted is to be found on the revenue side.

| (4) | The programme broadly follows the model structure and data provision requirements for stability and convergence programmes specified in the new code of conduct (2). |
| --- | --- |

(4)

The programme broadly follows the model structure and data provision requirements for stability and convergence programmes specified in the new code of conduct (2).

| (5) | The macroeconomic scenario underlying the programme envisages that real GDP growth will remain in a narrow range of between 4,5 % and 5 % over the programme period. Assessed against currently available information, this scenario appears to be based on plausible growth assumptions. While the current picture suggests a broadly healthy condition of the economy with robust growth to continue, there are some downside risks to the macroeconomic outlook in the medium term. In particular, these are related to global economic prospects, given the openness of the economy; and domestically, to any sharp downturn from the extended residential construction boom. The programme's projection for HICP inflation may be on the low side. |
| --- | --- |

(5)

The macroeconomic scenario underlying the programme envisages that real GDP growth will remain in a narrow range of between 4,5 % and 5 % over the programme period. Assessed against currently available information, this scenario appears to be based on plausible growth assumptions. While the current picture suggests a broadly healthy condition of the economy with robust growth to continue, there are some downside risks to the macroeconomic outlook in the medium term. In particular, these are related to global economic prospects, given the openness of the economy; and domestically, to any sharp downturn from the extended residential construction boom. The programme's projection for HICP inflation may be on the low side.

| (6) | The update confirms the commitment of the Irish government to maintaining sound public finances. Starting from a 0,25 % of GDP surplus in 2005, the budgetary strategy envisages a general government deficit of 0,6 % in 2006 and 0,8 % of GDP in the final two years of the programme. The primary surplus falls from 1,5 % of GDP in 2005 to 0,5 % in the years 2006-2008. The revenue-to-GDP ratio is on a declining trend, while the expenditure ratio initially increases and falls back to the 2005 level only towards the end of the programme period. The investment-to-GDP ratio is projected to increase by 0,5 percentage point of GDP over the period 2005 to 2008. Apart from the better-than-expected 2005 outturn, the new update broadly confirms the budgetary targets of the previous programme. |
| --- | --- |

(6)

The update confirms the commitment of the Irish government to maintaining sound public finances. Starting from a 0,25 % of GDP surplus in 2005, the budgetary strategy envisages a general government deficit of 0,6 % in 2006 and 0,8 % of GDP in the final two years of the programme. The primary surplus falls from 1,5 % of GDP in 2005 to 0,5 % in the years 2006-2008. The revenue-to-GDP ratio is on a declining trend, while the expenditure ratio initially increases and falls back to the 2005 level only towards the end of the programme period. The investment-to-GDP ratio is projected to increase by 0,5 percentage point of GDP over the period 2005 to 2008. Apart from the better-than-expected 2005 outturn, the new update broadly confirms the budgetary targets of the previous programme.

| (7) | Following the fiscal expansion planned for 2006, the structural balance (i.e. the cyclically-adjusted balance net of one-off and other temporary measures) calculated according to the commonly agreed methodology is planned to stabilise at around 0,1 % of GDP over the rest of the programme period. The programme sets the medium-term objective (MTO) for the budgetary position at a structural position of close to balance and plans to maintain a structural position that satisfies the programme's MTO throughout the programme period. As the programme's MTO is more demanding than the minimum benchmark (estimated at a deficit of around 1,25 % of GDP), its achievement should fulfil the aim of providing a safety margin against the occurrence of an excessive deficit. As regards appropriateness, the programme's MTO lies within the range indicated for euro area and ERM II Member States in the Stability and Growth Pact and the code of conduct and is more demanding than implied by the debt ratio and average potential output growth in the long term. |
| --- | --- |

(7)

Following the fiscal expansion planned for 2006, the structural balance (i.e. the cyclically-adjusted balance net of one-off and other temporary measures) calculated according to the commonly agreed methodology is planned to stabilise at around 0,1 % of GDP over the rest of the programme period. The programme sets the medium-term objective (MTO) for the budgetary position at a structural position of close to balance and plans to maintain a structural position that satisfies the programme's MTO throughout the programme period. As the programme's MTO is more demanding than the minimum benchmark (estimated at a deficit of around 1,25 % of GDP), its achievement should fulfil the aim of providing a safety margin against the occurrence of an excessive deficit. As regards appropriateness, the programme's MTO lies within the range indicated for euro area and ERM II Member States in the Stability and Growth Pact and the code of conduct and is more demanding than implied by the debt ratio and average potential output growth in the long term.

| (8) | The budgetary outcome could be better than projected in the programme, in particular in 2006. The revenue forecast might imply cautious assumptions on tax projections in the programme and, on the expenditure side, the capital outlays might turn out somewhat below planned allocations. Risks to the budgetary targets stemming from the macroeconomic projections in the update appear neutral and are broadly in line with the Commission services' evaluation; however, the budgetary projections could be vulnerable if the downside macroeconomic risks in the medium term were to be realised. |
| --- | --- |

(8)

The budgetary outcome could be better than projected in the programme, in particular in 2006. The revenue forecast might imply cautious assumptions on tax projections in the programme and, on the expenditure side, the capital outlays might turn out somewhat below planned allocations. Risks to the budgetary targets stemming from the macroeconomic projections in the update appear neutral and are broadly in line with the Commission services' evaluation; however, the budgetary projections could be vulnerable if the downside macroeconomic risks in the medium term were to be realised.

| (9) | In view of this risk assessment, the budgetary stance in the programme seems sufficient to maintain the programme's MTO throughout the programme period, as envisaged in the programme. In addition it provides a sufficient safety margin against breaching the 3 % of GDP deficit threshold with normal macroeconomic fluctuations in each year. |
| --- | --- |

(9)

In view of this risk assessment, the budgetary stance in the programme seems sufficient to maintain the programme's MTO throughout the programme period, as envisaged in the programme. In addition it provides a sufficient safety margin against breaching the 3 % of GDP deficit threshold with normal macroeconomic fluctuations in each year.

| (10) | The debt ratio, which was still just below 100 % of GDP in the early 1990s, is estimated to have reached 28 % of GDP in 2005, well below the 60 % of GDP Treaty reference value. The programme projects the debt ratio to stabilise at this level over the programme period. In the absence of acquisition of non-general government assets by the National Pensions Reserve Fund (NPRF), the debt ratio would be falling significantly throughout the programme period. |
| --- | --- |

(10)

The debt ratio, which was still just below 100 % of GDP in the early 1990s, is estimated to have reached 28 % of GDP in 2005, well below the 60 % of GDP Treaty reference value. The programme projects the debt ratio to stabilise at this level over the programme period. In the absence of acquisition of non-general government assets by the National Pensions Reserve Fund (NPRF), the debt ratio would be falling significantly throughout the programme period.

| (11) | With regard to the sustainability of public finances, Ireland appears to be at medium risk on grounds of the projected budgetary costs of an ageing population. The currently sound budgetary position, in conjunction with the low debt level and the accumulation of assets in the National Pension Reserve Fund, helps partly to offset the significant rise in age-related government expenditure, notably on pensions, projected over the long term. Ireland has also recently enacted reforms to the pension system for public servants, and the authorities envisage further measures that should contribute to a more sustainable basis for the provision of public service pensions. The commitment to monitoring the adequacy of contribution rates through regular actuarial reviews is helpful. Implementing additional measures aimed at easing the budgetary impact of an ageing population over the long term would be nevertheless an important element in reducing risks to the sustainability of public finances. |
| --- | --- |

(11)

With regard to the sustainability of public finances, Ireland appears to be at medium risk on grounds of the projected budgetary costs of an ageing population. The currently sound budgetary position, in conjunction with the low debt level and the accumulation of assets in the National Pension Reserve Fund, helps partly to offset the significant rise in age-related government expenditure, notably on pensions, projected over the long term. Ireland has also recently enacted reforms to the pension system for public servants, and the authorities envisage further measures that should contribute to a more sustainable basis for the provision of public service pensions. The commitment to monitoring the adequacy of contribution rates through regular actuarial reviews is helpful. Implementing additional measures aimed at easing the budgetary impact of an ageing population over the long term would be nevertheless an important element in reducing risks to the sustainability of public finances.

| (12) | The envisaged measures in the area of public finances are broadly consistent with the broad economic policy guidelines included in the integrated guidelines for the period 2005-2008. In particular, Ireland respects its MTO and the update provides an overview of the government's structural reform programme that should contribute towards enhancing the quality of public services, increasing the efficiency of public spending and addressing the infrastructural needs of the Irish economy. |
| --- | --- |

(12)

The envisaged measures in the area of public finances are broadly consistent with the broad economic policy guidelines included in the integrated guidelines for the period 2005-2008. In particular, Ireland respects its MTO and the update provides an overview of the government's structural reform programme that should contribute towards enhancing the quality of public services, increasing the efficiency of public spending and addressing the infrastructural needs of the Irish economy.

| (13) | The National Reform Programme of Ireland, submitted on 28 October 2005 in the context of the renewed Lisbon strategy for growth and jobs identifies, in particular, the following challenges with significant implications for public finances: (i) to continue to prioritise public investment in economic and social infrastructure and other growth-enhancing expenditures; and (ii) to maintain a stable macroeconomic environment and sustainable public finances, and to ensure moderate inflation levels. The budgetary implications of the policy directions outlined in the National Reform Programme appear to be reflected in the budgetary projections of the stability programme. The measures in the area of public finances envisaged in the stability programme are in line with the actions foreseen in the National Reform Programme. The stability programme complements these measures with proposed changes in the institutional features of the public finances, including some innovations in the budgetary and estimates process. |
| --- | --- |

(13)

The National Reform Programme of Ireland, submitted on 28 October 2005 in the context of the renewed Lisbon strategy for growth and jobs identifies, in particular, the following challenges with significant implications for public finances: (i) to continue to prioritise public investment in economic and social infrastructure and other growth-enhancing expenditures; and (ii) to maintain a stable macroeconomic environment and sustainable public finances, and to ensure moderate inflation levels. The budgetary implications of the policy directions outlined in the National Reform Programme appear to be reflected in the budgetary projections of the stability programme. The measures in the area of public finances envisaged in the stability programme are in line with the actions foreseen in the National Reform Programme. The stability programme complements these measures with proposed changes in the institutional features of the public finances, including some innovations in the budgetary and estimates process.

The Council is of the opinion that, overall, the budgetary position is sound and the budgetary strategy provides a good example of fiscal policies in compliance with the Stability and Growth Pact. The Council invites Ireland to continue to implement measures to address the long-term budgetary implications of an ageing population.

Comparison of key macroeconomic and budgetary projections

| | 2004 | 2005 | 2006 | 2007 | 2008 |
| --- | --- | --- | --- | --- | --- |
| Real GDP
  (% change) | SP Dec 2005 | 4,5 | 4,6 | 4,8 | 5,0 | 4,8 |
| COM Nov 2005 (4) | 4,5 | 4,4 | 4,8 | 5,0 | n.a. |
| SP Dec 2004 | 5,3 | 5,1 | 5,2 | 5,4 | n.a. |
| HICP inflation
  (%) | SP Dec 2005 | 2,3 | 2,2 | 2,0 | 2,0 | 1,8 |
| COM Nov 2005 | 2,3 | 2,2 | 2,5 | 2,4 | n.a. |
| SP Dec 2004 | 2,3 | 2,1 | 2,0 | 1,9 | n.a. |
| Output gap
  (% of potential GDP) | SP Dec 2005 (3) | 0,1 | – 1,3 | – 1,9 | – 2,2 | – 2,1 |
| COM Nov 2005 (8) | 0,1 | – 1,6 | – 2,2 | – 2,6 | n.a. |
| SP Dec 2004 (3) | – 1,0 | – 1,8 | – 2,3 | – 2,0 | n.a. |
| General government balance
  (% of GDP) | SP Dec 2005 | 1,4 | 0,3 | – 0,6 | – 0,8 | – 0,8 |
| COM Nov 2005 (4) | 1,4 | – 0,4 | – 0,3 | – 0,1 | n.a. |
| SP Dec 2004 | 0,9 | – 0,8 | – 0,6 | – 0,6 | n.a. |
| Primary balance
  (% of GDP) | SP Dec 2005 | 2,6 | 1,5 | 0,6 | 0,4 | 0,5 |
| COM Nov 2005 (4) | 2,7 | 0,8 | 0,8 | 0,9 | n.a. |
| SP Dec 2004 | 2,1 | 0,6 | 0,6 | 0,7 | n.a. |
| Cyclically-adjusted balance
  (% of GDP) | SP Dec 2005 (3) | 1,4 | 0,8 | 0,2 | 0,1 | 0,1 |
| COM Nov 2005 (4) | 1,4 | 0,2 | 0,6 | 0,9 | n.a. |
| SP Dec 2004 (3) | 1,2 | – 0,2 | 0,1 | 0,0 | n.a. |
| Structural balance (5)

  (% of GDP) | SP Dec 2005 (6) | 0,7 | 1,1 | 0,1 | 0,1 | 0,1 |
| COM Nov 2005 (4)
   (7) | 0,7 | 0,6 | 0,6 | 0,9 | n.a. |
| SP Dec 2004 | n.d. | n.a. | n.a. | n.a. | n.a. |
| Government gross debt
  (% of GDP) | SP Dec 2005 | 29,4 | 28,0 | 28,0 | 28,2 | 28,3 |
| COM Nov 2005 (4) | 29,8 | 29,0 | 28,7 | 28,2 | n.a. |
| SP Dec 2004 | 30,5 | 30,1 | 30,1 | 30,0 | n.a. |
| Stability programme (SP); Commission services' autumn 2005 economic forecasts (COM); Commission services' calculations. |

2004

2005

2006

2007

2008

Real GDP

(% change)

SP Dec 2005

4,5

4,6

4,8

5,0

4,8

COM Nov 2005 (4)

4,5

4,4

4,8

5,0

n.a.

SP Dec 2004

5,3

5,1

5,2

5,4

n.a.

HICP inflation

(%)

SP Dec 2005

2,3

2,2

2,0

2,0

1,8

COM Nov 2005

2,3

2,2

2,5

2,4

n.a.

SP Dec 2004

2,3

2,1

2,0

1,9

n.a.

Output gap

(% of potential GDP)

SP Dec 2005 (3)

0,1

– 1,3

– 1,9

– 2,2

– 2,1

COM Nov 2005 (8)

0,1

– 1,6

– 2,2

– 2,6

n.a.

SP Dec 2004 (3)

– 1,0

– 1,8

– 2,3

– 2,0

n.a.

General government balance

(% of GDP)

SP Dec 2005

1,4

0,3

– 0,6

– 0,8

– 0,8

COM Nov 2005 (4)

1,4

– 0,4

– 0,3

– 0,1

n.a.

SP Dec 2004

0,9

– 0,8

– 0,6

– 0,6

n.a.

Primary balance

(% of GDP)

SP Dec 2005

2,6

1,5

0,6

0,4

0,5

COM Nov 2005 (4)

2,7

0,8

0,8

0,9

n.a.

SP Dec 2004

2,1

0,6

0,6

0,7

n.a.

Cyclically-adjusted balance

(% of GDP)

SP Dec 2005 (3)

1,4

0,8

0,2

0,1

0,1

COM Nov 2005 (4)

1,4

0,2

0,6

0,9

n.a.

SP Dec 2004 (3)

1,2

– 0,2

0,1

0,0

n.a.

Structural balance (5)

(% of GDP)

SP Dec 2005 (6)

0,7

1,1

0,1

0,1

0,1

COM Nov 2005 (4)
   (7)

0,7

0,6

0,6

0,9

n.a.

SP Dec 2004

n.d.

n.a.

n.a.

n.a.

n.a.

Government gross debt

(% of GDP)

SP Dec 2005

29,4

28,0

28,0

28,2

28,3

COM Nov 2005 (4)

29,8

29,0

28,7

28,2

n.a.

SP Dec 2004

30,5

30,1

30,1

30,0

n.a.

Stability programme (SP); Commission services' autumn 2005 economic forecasts (COM); Commission services' calculations.

---

(1)  OJ L 209, 2.8.1997, p. 1. Regulation as amended by Regulation (EC) No 1055/2005 (OJ L 174, 7.7.2005, p. 1). The documents referred to in this text can be found at the following website:

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

(2)  The programme provides all compulsory data prescribed by the new code of conduct but some of the optional data are missing.

(3)  Commission services' calculations on the basis of the information in the programme.

(4)  Commission services' autumn 2005 forecast pre-dates the December 2005 Budget on which the updated stability programme is based.

(5)  Cyclically-adjusted balance (as in the previous rows) excluding one-off and other temporary measures.

(6)  One-off and other temporary measures taken from the programme (0.3% of GDP in 2005; surplus decreasing). An estimate of one-offs for 2004 and 2006 provided by the Irish Department of Finance: 0.7% of GDP in 2004 and 0.1% of GDP in 2006 respectively (both surplus increasing).

(7)  One-off and other temporary measures taken from the Commission services' autumn 2005 forecast (0.4% of GDP in 2005; surplus decreasing).

(8)  Based on estimated potential growth of 5.8%, 6.1%, 5.5% and 5.3% respectively in the period 2004-2007.

Source:

Stability programme (SP); Commission services' autumn 2005 economic forecasts (COM); Commission services' calculations.

---

| 5.4.2006 | EN | Official Journal of the European Union | C 82/23 |
| --- | --- | --- | --- |

5.4.2006

EN

Official Journal of the European Union

C 82/23

---

COUNCIL OPINION

of 14 March 2006

on the updated stability programme of Italy, 2005-2009

(2006/C 82/06)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community,

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 14 March 2006 the Council examined the updated stability programme of Italy, which covers the period 2005 to 2009. |
| --- | --- |

(1)

On 14 March 2006 the Council examined the updated stability programme of Italy, which covers the period 2005 to 2009.

| (2) | Between 1995 and 2004, Italian GDP grew at an average rate of 1,5 % per year, below the 2 % of the euro area. Over the last decade, Italy has experienced a marked slowdown in productivity growth, a progressive deterioration in competitiveness leading to a steady loss of export market shares and, since 2000, a significant contraction in manufacturing activity. Italy undertook significant fiscal consolidation efforts during the 1990s, reducing the government deficit from almost 12 % of GDP in 1990 to below 2 % at the end of the decade. However, the deficit rose again above 3 % of GDP in 2001, 2003 and 2004, remaining close to it only thanks to significant one-off measures (2). The primary surplus, from 5 % of GDP in 1999, fell to 1,8 % of GDP in 2004, and the decline in the debt-to-GDP ratio, which had peaked at 125 % in 1994, slowed down considerably. At the end of 2004, the debt was 106,5 % of GDP. |
| --- | --- |

(2)

Between 1995 and 2004, Italian GDP grew at an average rate of 1,5 % per year, below the 2 % of the euro area. Over the last decade, Italy has experienced a marked slowdown in productivity growth, a progressive deterioration in competitiveness leading to a steady loss of export market shares and, since 2000, a significant contraction in manufacturing activity. Italy undertook significant fiscal consolidation efforts during the 1990s, reducing the government deficit from almost 12 % of GDP in 1990 to below 2 % at the end of the decade. However, the deficit rose again above 3 % of GDP in 2001, 2003 and 2004, remaining close to it only thanks to significant one-off measures (2). The primary surplus, from 5 % of GDP in 1999, fell to 1,8 % of GDP in 2004, and the decline in the debt-to-GDP ratio, which had peaked at 125 % in 1994, slowed down considerably. At the end of 2004, the debt was 106,5 % of GDP.

| (3) | In its opinion of 17 February 2005 on the previous update of the stability programme, the Council invited Italy to: ensure the achievement of the 2005 deficit target, achieve a budgetary position of close to balance by 2008 and ensure that the debt-to-GDP ratio diminishes at a more rapid pace, paying particular attention to debt-increasing factors other than net borrowing. On 28 July 2005 the Council decided that Italy was in excessive deficit. According to the Council recommendation under Article 104(7) of the same date, the excessive deficit has to be corrected by 2007. On 22 February, the Commission adopted a communication concluding that the actions taken by Italy before the 12 January 2006 deadline set by the Council, if fully implemented, would be consistent with the consolidation path contained in the Council recommendation. |
| --- | --- |

(3)

In its opinion of 17 February 2005 on the previous update of the stability programme, the Council invited Italy to: ensure the achievement of the 2005 deficit target, achieve a budgetary position of close to balance by 2008 and ensure that the debt-to-GDP ratio diminishes at a more rapid pace, paying particular attention to debt-increasing factors other than net borrowing. On 28 July 2005 the Council decided that Italy was in excessive deficit. According to the Council recommendation under Article 104(7) of the same date, the excessive deficit has to be corrected by 2007. On 22 February, the Commission adopted a communication concluding that the actions taken by Italy before the 12 January 2006 deadline set by the Council, if fully implemented, would be consistent with the consolidation path contained in the Council recommendation.

| (4) | The 2005 deficit is estimated at 4,3 % of GDP, against a target of 2,7 % of GDP set in the previous update. The target was missed due to: (i) a shortfall in GDP growth; (ii) slippages in primary expenditure and sale of real estate, not fully compensated by higher revenues and lower interest expenditure; and (iii) carry-over effects from 2004, essentially due to statistical revisions. |
| --- | --- |

(4)

The 2005 deficit is estimated at 4,3 % of GDP, against a target of 2,7 % of GDP set in the previous update. The target was missed due to: (i) a shortfall in GDP growth; (ii) slippages in primary expenditure and sale of real estate, not fully compensated by higher revenues and lower interest expenditure; and (iii) carry-over effects from 2004, essentially due to statistical revisions.

| (5) | The programme broadly follows the model structure, but deviates on some material points from the data provision requirements for stability and convergence programmes specified in the new code of conduct (3). The update was submitted three weeks beyond the 1 December deadline set in the code of conduct, reflecting the authorities' wish to incorporate the final version of the 2006 budget. |
| --- | --- |

(5)

The programme broadly follows the model structure, but deviates on some material points from the data provision requirements for stability and convergence programmes specified in the new code of conduct (3). The update was submitted three weeks beyond the 1 December deadline set in the code of conduct, reflecting the authorities' wish to incorporate the final version of the 2006 budget.

| (6) | The macroeconomic scenario underlying the programme envisages that real GDP growth will pick up from zero in 2005 to slightly above 1,5 % on average over the rest of the programme period. Assessed against currently available information, this scenario appears to be plausible. The programme's projections for inflation also appear to be realistic. |
| --- | --- |

(6)

The macroeconomic scenario underlying the programme envisages that real GDP growth will pick up from zero in 2005 to slightly above 1,5 % on average over the rest of the programme period. Assessed against currently available information, this scenario appears to be plausible. The programme's projections for inflation also appear to be realistic.

| (7) | The budgetary strategy outlined in the programme aims at reducing the deficit below 3 % of GDP by 2007, pursuing further fiscal consolidation towards a balanced budget in subsequent years. The primary balance is planned to improve from 0,6 % of GDP in 2005 to 3,2 % in 2009. The budgetary correction in 2006 is largely expenditure driven. For the years 2007-2009, the information is limited to the size of the correction required to achieve the budgetary targets relative to trend deficits based on unchanged legislation. Compared with the previous programme, the new update frontloads the planned adjustment against a less favourable macroeconomic scenario. However, the new deficit target for 2008 is 1,2 % of GDP worse than in the previous update, as the frontloading does not fully offset the effect of a much weaker 2005 starting position. |
| --- | --- |

(7)

The budgetary strategy outlined in the programme aims at reducing the deficit below 3 % of GDP by 2007, pursuing further fiscal consolidation towards a balanced budget in subsequent years. The primary balance is planned to improve from 0,6 % of GDP in 2005 to 3,2 % in 2009. The budgetary correction in 2006 is largely expenditure driven. For the years 2007-2009, the information is limited to the size of the correction required to achieve the budgetary targets relative to trend deficits based on unchanged legislation. Compared with the previous programme, the new update frontloads the planned adjustment against a less favourable macroeconomic scenario. However, the new deficit target for 2008 is 1,2 % of GDP worse than in the previous update, as the frontloading does not fully offset the effect of a much weaker 2005 starting position.

| (8) | Over the programme period, the structural balance (i.e. the cyclically-adjusted balance net of one-off and other temporary measures) calculated according to the commonly agreed methodology is planned to improve on average by about 0,75 % of GDP per year. The programme sets the medium-term objective (MTO) for the budgetary position as meant in the Stability and Growth Pact at a balanced budget, which it does not aim to achieve within the programme period. As the programme's MTO is more demanding than the minimum benchmark (estimated at a deficit of around 1,5 % of GDP), its achievement should fulfil the aim of providing a safety margin against the occurrence of an excessive deficit. However, the minimum benchmark would only be achieved in 2009. The programme's MTO is at an appropriate level because it lies within the range indicated for euro area and ERM II Member States in the Stability and Growth Pact and the code of conduct and adequately reflects the debt ratio and average potential output growth in the long term. |
| --- | --- |

(8)

Over the programme period, the structural balance (i.e. the cyclically-adjusted balance net of one-off and other temporary measures) calculated according to the commonly agreed methodology is planned to improve on average by about 0,75 % of GDP per year. The programme sets the medium-term objective (MTO) for the budgetary position as meant in the Stability and Growth Pact at a balanced budget, which it does not aim to achieve within the programme period. As the programme's MTO is more demanding than the minimum benchmark (estimated at a deficit of around 1,5 % of GDP), its achievement should fulfil the aim of providing a safety margin against the occurrence of an excessive deficit. However, the minimum benchmark would only be achieved in 2009. The programme's MTO is at an appropriate level because it lies within the range indicated for euro area and ERM II Member States in the Stability and Growth Pact and the code of conduct and adequately reflects the debt ratio and average potential output growth in the long term.

| (9) | The budgetary outcomes could be worse than projected in the programme. There are significant uncertainties regarding the implementation of the 2006 budget, in particular of the sizeable expenditure savings. Beyond 2006, there is no information on the measures envisaged, and the size of the needed fiscal correction may be underestimated. |
| --- | --- |

(9)

The budgetary outcomes could be worse than projected in the programme. There are significant uncertainties regarding the implementation of the 2006 budget, in particular of the sizeable expenditure savings. Beyond 2006, there is no information on the measures envisaged, and the size of the needed fiscal correction may be underestimated.

| (10) | Taking into account the balance of risks, the correction of the excessive deficit by the 2007 deadline set by the Council crucially relies upon a full and effective implementation of the 2006 budget and the specification and implementation of substantial corrective measures for 2007 (4). The achievement of the safety margin in 2009 also hinges on these risks and on the specification and implementation of corrective measures for the years beyond 2007. In the years following the correction of the excessive deficit, the pace of the adjustment towards the programme's MTO implied by the programme is in line with the Stability and Growth Pact, which specifies that, for euro area and ERM II Member States, the annual improvement in the structural balance should be 0,5 % of GDP as a benchmark and that the adjustment should be higher in good economic times and could be lower in bad economic times. |
| --- | --- |

(10)

Taking into account the balance of risks, the correction of the excessive deficit by the 2007 deadline set by the Council crucially relies upon a full and effective implementation of the 2006 budget and the specification and implementation of substantial corrective measures for 2007 (4). The achievement of the safety margin in 2009 also hinges on these risks and on the specification and implementation of corrective measures for the years beyond 2007. In the years following the correction of the excessive deficit, the pace of the adjustment towards the programme's MTO implied by the programme is in line with the Stability and Growth Pact, which specifies that, for euro area and ERM II Member States, the annual improvement in the structural balance should be 0,5 % of GDP as a benchmark and that the adjustment should be higher in good economic times and could be lower in bad economic times.

| (11) | The debt ratio is estimated to have reached 108,5 % of GDP in 2005, well above the 60 % of GDP Treaty reference value, and amongst the highest in the EU. The programme projects the debt ratio to decline by 7 percentage points over the programme period. The evolution of the debt ratio might be less favourable than projected in the programme given the risks to the budgetary targets mentioned above and uncertainty about the stock-flow adjustment. In view of this risk assessment, a further strengthening of the budgetary position would be necessary to guarantee a sufficiently diminishing debt ratio towards the reference value. |
| --- | --- |

(11)

The debt ratio is estimated to have reached 108,5 % of GDP in 2005, well above the 60 % of GDP Treaty reference value, and amongst the highest in the EU. The programme projects the debt ratio to decline by 7 percentage points over the programme period. The evolution of the debt ratio might be less favourable than projected in the programme given the risks to the budgetary targets mentioned above and uncertainty about the stock-flow adjustment. In view of this risk assessment, a further strengthening of the budgetary position would be necessary to guarantee a sufficiently diminishing debt ratio towards the reference value.

| (12) | With regard to the sustainability of public finances, Italy appears to be at medium risk on grounds of the projected budgetary costs of an ageing population. Past reforms have helped to contain future rises in public expenditure and their full implementation, notably of the 2004 pension reform, will be crucial to obtain the expected results. The currently high level of gross debt and the weak budgetary position indicate the necessity for strong consolidation of public finances over the medium-term to reduce risks to public finance sustainability (5). |
| --- | --- |

(12)

With regard to the sustainability of public finances, Italy appears to be at medium risk on grounds of the projected budgetary costs of an ageing population. Past reforms have helped to contain future rises in public expenditure and their full implementation, notably of the 2004 pension reform, will be crucial to obtain the expected results. The currently high level of gross debt and the weak budgetary position indicate the necessity for strong consolidation of public finances over the medium-term to reduce risks to public finance sustainability (5).

| (13) | The envisaged measures in the area of public finances are broadly consistent with the broad economic policy guidelines included in the integrated guidelines for the period 2005-2008. In particular, Italy is taking action to correct the excessive deficit and is committed to ensure an average annual structural adjustment, net of one-off measures, in line with the Stability and Growth Pact. However, it would be appropriate to envisage a more rapid pace of government debt reduction. |
| --- | --- |

(13)

The envisaged measures in the area of public finances are broadly consistent with the broad economic policy guidelines included in the integrated guidelines for the period 2005-2008. In particular, Italy is taking action to correct the excessive deficit and is committed to ensure an average annual structural adjustment, net of one-off measures, in line with the Stability and Growth Pact. However, it would be appropriate to envisage a more rapid pace of government debt reduction.

| (14) | The National Reform Programme of Italy, submitted on 14 October 2005 in the context of the renewed Lisbon strategy for growth and jobs, identifies five challenges: extending the area of free choice for citizens and companies (by opening up energy and services markets); granting incentives for scientific research and technological innovation; strengthening education and training; upgrading infrastructure; and protecting the environment. With regard to public finances, a sixth priority, long-term fiscal sustainability, is addressed in the Economic and Financial Planning Document (DPEF) of July 2005. The measures in the area of public finance envisaged in the NRP and the DPEF are broadly in line with the actions foreseen in the stability programme. The update outlines measures to reduce social contributions, encourage private pension savings and reduce health care deficits. |
| --- | --- |

(14)

The National Reform Programme of Italy, submitted on 14 October 2005 in the context of the renewed Lisbon strategy for growth and jobs, identifies five challenges: extending the area of free choice for citizens and companies (by opening up energy and services markets); granting incentives for scientific research and technological innovation; strengthening education and training; upgrading infrastructure; and protecting the environment. With regard to public finances, a sixth priority, long-term fiscal sustainability, is addressed in the Economic and Financial Planning Document (DPEF) of July 2005. The measures in the area of public finance envisaged in the NRP and the DPEF are broadly in line with the actions foreseen in the stability programme. The update outlines measures to reduce social contributions, encourage private pension savings and reduce health care deficits.

In view of the above assessment, the programme can be considered as consistent with a correction of the excessive deficit by 2007, subject to a full and effective implementation of the 2006 budget and the specification and adoption of further substantial measures for 2007. In the light of the recommendations made by the Council under Article 104(7) of the Treaty on 28 July 2005, and in order to strengthen the sustainability of public finances, the Council invites Italy to:

| (i) | achieve the structural efforts envisaged in the programme for 2006 and 2007 in order to ensure the correction of the excessive deficit by 2007 in a credible and sustainable manner; |
| --- | --- |

(i)

achieve the structural efforts envisaged in the programme for 2006 and 2007 in order to ensure the correction of the excessive deficit by 2007 in a credible and sustainable manner;

| (ii) | spell out the broad measures underlying the adjustment path in 2007 and the outer years of the programme and ensure that the adjustment towards the medium-term objective remains in line with the Stability and Growth Pact requirements; |
| --- | --- |

(ii)

spell out the broad measures underlying the adjustment path in 2007 and the outer years of the programme and ensure that the adjustment towards the medium-term objective remains in line with the Stability and Growth Pact requirements;

| (iii) | ensure that the debt-to-GDP ratio is declining towards the 60 % of GDP Treaty reference value at a more rapid pace including by paying particular attention to factors other than net borrowing which contribute to the change in debt levels; and |
| --- | --- |

(iii)

ensure that the debt-to-GDP ratio is declining towards the 60 % of GDP Treaty reference value at a more rapid pace including by paying particular attention to factors other than net borrowing which contribute to the change in debt levels; and

| (iv) | improve the budgetary process by increasing its transparency and by an effective implementation of the past and new mechanisms to monitor, control and report expenditure. |
| --- | --- |

(iv)

improve the budgetary process by increasing its transparency and by an effective implementation of the past and new mechanisms to monitor, control and report expenditure.

Comparison of key macroeconomic and budgetary projections (6)

| | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 |
| --- | --- | --- | --- | --- | --- | --- |
| Real GDP
  (% change) | SP December 2005 | 1,2 | 0,0 | 1,5 | 1,5 | 1,7 | 1,8 |
| COM Nov 2005 (11) | 1,2 | 0,2 | 1,5 | 1,4 | n.a. | n.a. |
| SP November 2004 | 1,2 | 2,1 | 2,2 | 2,3 | 2,3 | n.a. |
| HICP inflation
  (%) | SP December 2005 | 2,3 | 2,3 | 2,3 | 2,2 | 2,0 | 2,0 |
| COM Nov 2005 | 2,3 | 2,2 | 2,1 | 1,9 | n.a. | n.a. |
| SP November 2004 | 2,2 | 1,6 | 1,5 | 1,4 | 1,4 | n.a. |
| Output gap
  (% of potential GDP) | SP December 2005 (7) | – 0,4 | – 1,5 | – 1,2 | – 1,0 | – 0,8 | – 0,6 |
| COM Nov 2005 (12) | – 0,5 | – 1,5 | – 1,2 | – 1,2 | n.a. | n.a. |
| SP November 2004 (7) | – 1,6 | – 1,2 | – 0,8 | – 0,3 | 0,0 | n.a. |
| General government balance
  (% of GDP) | SP December 2005 | – 3,2 | – 4,3 | – 3,5 | – 2,8 | – 2,1 | – 1,5 |
| COM Nov 2005 | – 3,2 | – 4,3 | – 4,2 | – 4,6 | n.a. | n.a. |
| SP November 2004 | – 2,9 | – 2,7 | – 2,0 | – 1,4 | – 0,9 | n.a. |
| Primary balance
  (% of GDP) | SP December 2005 | 1,8 | 0,6 | 1,3 | 1,9 | 2,6 | 3,2 |
| COM Nov 2005 | 1,8 | 0,6 | 0,6 | 0,3 | n.a. | n.a. |
| SP November 2004 | 2,4 | 2,4 | 3,3 | 4,0 | 4,7 | n.a. |
| Cyclically-adjusted balance
  (% of GDP) | SP December 2005 (7) | – 3,0 | – 3,5 | – 2,9 | – 2,3 | – 1,7 | – 1,2 |
| COM Nov 2005 | – 3,0 | – 3,5 | – 3,6 | – 4,0 | n.a. | n.a. |
| SP November 2004 (7) | – 2,1 | – 2,1 | – 1,6 | – 1,2 | – 1,0 | n.a. |
| Structural balance (8)

  (% of GDP) | SP December 2005 (9) | – 4,4 | – 4,1 | – 3,2 | – 2,3 | – 1,7 | – 1,2 |
| COM Nov 2005 (10) | – 4,4 | – 4,0 | – 4,0 | – 4,0 | n.a. | n.a. |
| SP November 2004 | n.a. | n.a. | n.a. | n.a. | n.a. | n.a. |
| Government gross debt
  (% of GDP) | SP December 2005 | 106,5 | 108,5 | 108,0 | 106,1 | 104,4 | 101,7 |
| COM Nov 2005 | 106,5 | 108,6 | 108,3 | 107,9 | n.a. | n.a. |
| SP November 2004 | 106,0 | 104,1 | 101,9 | 99,2 | 98,0 | n.d. |
| Source:


  Stability programme (SP); Commission services' autumn 2005 economic forecasts (COM); Commission services' calculations. |

2004

2005

2006

2007

2008

2009

Real GDP

(% change)

SP December 2005

1,2

0,0

1,5

1,5

1,7

1,8

COM Nov 2005 (11)

1,2

0,2

1,5

1,4

n.a.

n.a.

SP November 2004

1,2

2,1

2,2

2,3

2,3

n.a.

HICP inflation

(%)

SP December 2005

2,3

2,3

2,3

2,2

2,0

2,0

COM Nov 2005

2,3

2,2

2,1

1,9

n.a.

n.a.

SP November 2004

2,2

1,6

1,5

1,4

1,4

n.a.

Output gap

(% of potential GDP)

SP December 2005 (7)

– 0,4

– 1,5

– 1,2

– 1,0

– 0,8

– 0,6

COM Nov 2005 (12)

– 0,5

– 1,5

– 1,2

– 1,2

n.a.

n.a.

SP November 2004 (7)

– 1,6

– 1,2

– 0,8

– 0,3

0,0

n.a.

General government balance

(% of GDP)

SP December 2005

– 3,2

– 4,3

– 3,5

– 2,8

– 2,1

– 1,5

COM Nov 2005

– 3,2

– 4,3

– 4,2

– 4,6

n.a.

n.a.

SP November 2004

– 2,9

– 2,7

– 2,0

– 1,4

– 0,9

n.a.

Primary balance

(% of GDP)

SP December 2005

1,8

0,6

1,3

1,9

2,6

3,2

COM Nov 2005

1,8

0,6

0,6

0,3

n.a.

n.a.

SP November 2004

2,4

2,4

3,3

4,0

4,7

n.a.

Cyclically-adjusted balance

(% of GDP)

SP December 2005 (7)

– 3,0

– 3,5

– 2,9

– 2,3

– 1,7

– 1,2

COM Nov 2005

– 3,0

– 3,5

– 3,6

– 4,0

n.a.

n.a.

SP November 2004 (7)

– 2,1

– 2,1

– 1,6

– 1,2

– 1,0

n.a.

Structural balance (8)

(% of GDP)

SP December 2005 (9)

– 4,4

– 4,1

– 3,2

– 2,3

– 1,7

– 1,2

COM Nov 2005 (10)

– 4,4

– 4,0

– 4,0

– 4,0

n.a.

n.a.

SP November 2004

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

Government gross debt

(% of GDP)

SP December 2005

106,5

108,5

108,0

106,1

104,4

101,7

COM Nov 2005

106,5

108,6

108,3

107,9

n.a.

n.a.

SP November 2004

106,0

104,1

101,9

99,2

98,0

n.d.

Source:

Stability programme (SP); Commission services' autumn 2005 economic forecasts (COM); Commission services' calculations.

---

(1)  OJ L 209, 2.8.1997, p. 1. Regulation as amended by Regulation (EC) No 1055/2005 (OJ L 174, 7.7.2005, p. 1). The documents referred to in this text can be found at the following website:

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

(2)  The budgetary impact of one-off measures amounted to 0,6 % of GDP in 2001, 1,9 % in 2003 and 1,4 % in 2004. In 2002, the deficit was at 2,7 % of GDP, with 1,3 % of GDP of one-offs.

(3)  In particular, the optional chapter on ‘institutional features of public finance’ is missing, and the programme also has gaps in the compulsory data and does not provide all optional data prescribed by the new code of conduct (especially, there is no breakdown of the budget consistent with the deficit targets for the years 2007-2009).

(4)  An amnesty on unpaid social contributions of the agricultural sector currently debated in the Italian Parliament, if eventually approved and subject to statistical verification, might produce a limited upward revision for the deficit and/or the debt ratio.

(5)  Details on long-term sustainability are provided in the technical assessment of the programme by the Commission services

(http://europa.eu.int/comm/economy_finance/about/activities/sgp/main_en.htm).

(6)  The Commission services' autumn 2005 forecast was based on information available up to the cut-off date of 7 November 2005. Therefore, it was based on a draft version of the 2006 budget.

(7)  Commission services calculations on the basis of the information in the programme.

(8)  Cyclically-adjusted balance (as in the previous rows) excluding one-off and other temporary measures.

(9)  One-off and other temporary measures as calculated by the Commission services (1.4% of GDP in 2004, 0.6% in 2005 and 0.3% of GDP in 2006; deficit-reducing).

(10)  One-off and other temporary measures taken from the Commission services' autumn 2005 forecast (1.4% of GDP in 2004, 0.5% in 2005, and 0.4% in 2006; all deficit-reducing).

(11)  The Commission services' interim forecast of 21 February 2006 projects growth of 1.3% in 2006.

(12)  Based on estimated potential growth of 1.4%, 1.2%, 1.2% and 1.3% respectively in the period 2004-2007.

Source:

Stability programme (SP); Commission services' autumn 2005 economic forecasts (COM); Commission services' calculations.

---

| 5.4.2006 | EN | Official Journal of the European Union | C 82/27 |
| --- | --- | --- | --- |

5.4.2006

EN

Official Journal of the European Union

C 82/27

---

COUNCIL OPINION

of 14 March 2006

on the updated stability programme of the Netherlands, 2005-2008

(2006/C 82/07)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community,

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 14 March 2006 the Council examined the updated stability programme of the Netherlands, covering the period 2005 to 2008. |
| --- | --- |

(1)

On 14 March 2006 the Council examined the updated stability programme of the Netherlands, covering the period 2005 to 2008.

| (2) | After buoyant economic growth in the second half of the 1990s, with GDP growth averaging 3,75 % per year also supported by a booming housing market and rising stock prices, growth came to a standstill in the years 2002 and 2003 and again in early 2005. Following a comfortable surplus in 2000, the general government balance deteriorated sharply, turning into a deficit in 2001 and 2002 and exceeding the 3 % of GDP threshold in 2003. On 2 June 2004, the Council decided that the Netherlands were in excessive deficit and recommended that the excessive deficit be corrected by 2005. A substantial budgetary consolidation was achieved already in 2004, which reduced the deficit to 2,1 % of GDP in 2004. On 7 June 2005, the Council decided that the excessive deficit in the Netherlands had been corrected in 2004 and therefore abrogated the excessive deficit decision. |
| --- | --- |

(2)

After buoyant economic growth in the second half of the 1990s, with GDP growth averaging 3,75 % per year also supported by a booming housing market and rising stock prices, growth came to a standstill in the years 2002 and 2003 and again in early 2005. Following a comfortable surplus in 2000, the general government balance deteriorated sharply, turning into a deficit in 2001 and 2002 and exceeding the 3 % of GDP threshold in 2003. On 2 June 2004, the Council decided that the Netherlands were in excessive deficit and recommended that the excessive deficit be corrected by 2005. A substantial budgetary consolidation was achieved already in 2004, which reduced the deficit to 2,1 % of GDP in 2004. On 7 June 2005, the Council decided that the excessive deficit in the Netherlands had been corrected in 2004 and therefore abrogated the excessive deficit decision.

| (3) | In its opinion of 18 January 2005 on the previous update of the stability programme, covering the period 2004-2007, the Council invited the Netherlands to ensure that the deficit was brought below 3 % of GDP by 2005, and, in view of the risk of pro-cyclicality and the challenges of ageing population, to take the necessary measures to achieve a budgetary position close to balance thereafter. |
| --- | --- |

(3)

In its opinion of 18 January 2005 on the previous update of the stability programme, covering the period 2004-2007, the Council invited the Netherlands to ensure that the deficit was brought below 3 % of GDP by 2005, and, in view of the risk of pro-cyclicality and the challenges of ageing population, to take the necessary measures to achieve a budgetary position close to balance thereafter.

| (4) | As regards budgetary implementation in 2005, the December 2005 update estimates that the general government deficit fell to 1,2 % of GDP against a deficit target of 2,6 % of GDP set in the November 2004 update of the stability programme and a deficit projection of 1,8 % of GDP in the Commission services' autumn 2005 forecast. The largest part of the improvement can be attributed to better-than-expected revenues mainly from higher gas prices and higher dividend, VAT and corporate tax revenues According to most recent estimates presented to Parliament, the 2005 deficit is even likely to be near 0,75 % of GDP, substantially lower than projected in the programme update. |
| --- | --- |

(4)

As regards budgetary implementation in 2005, the December 2005 update estimates that the general government deficit fell to 1,2 % of GDP against a deficit target of 2,6 % of GDP set in the November 2004 update of the stability programme and a deficit projection of 1,8 % of GDP in the Commission services' autumn 2005 forecast. The largest part of the improvement can be attributed to better-than-expected revenues mainly from higher gas prices and higher dividend, VAT and corporate tax revenues According to most recent estimates presented to Parliament, the 2005 deficit is even likely to be near 0,75 % of GDP, substantially lower than projected in the programme update.

| (5) | The December 2005 update of the Dutch stability programme, covering the period 2005 to 2008, was submitted to the Commission on 22 December 2005 (i.e., three weeks after the deadline of 1 December as prescribed in the code of conduct). According to the authorities, the late submission was caused by their wish to include new economic projections and possible supplementary policies. The programme broadly follows the model structure for stability and convergence programmes specified in the new code of conduct (2). |
| --- | --- |

(5)

The December 2005 update of the Dutch stability programme, covering the period 2005 to 2008, was submitted to the Commission on 22 December 2005 (i.e., three weeks after the deadline of 1 December as prescribed in the code of conduct). According to the authorities, the late submission was caused by their wish to include new economic projections and possible supplementary policies. The programme broadly follows the model structure for stability and convergence programmes specified in the new code of conduct (2).

| (6) | The programme projects real GDP growth to increase from an estimated 0,75 % in 2005 to 2,5 % in both 2006 and 2007, before slowing to 2,25 % in 2008. The projected pick-up in growth is driven by a recovery in both domestic demand and exports. The economic growth projections and the implied gradual decrease of the negative output gap are plausible, also in view of recent positive economic data. Inflation is expected to stabilise at 1,5 % in 2006, before falling to just above 1 % in 2007, which seems to be on the low side also compared to the Commission services' autumn forecast. |
| --- | --- |

(6)

The programme projects real GDP growth to increase from an estimated 0,75 % in 2005 to 2,5 % in both 2006 and 2007, before slowing to 2,25 % in 2008. The projected pick-up in growth is driven by a recovery in both domestic demand and exports. The economic growth projections and the implied gradual decrease of the negative output gap are plausible, also in view of recent positive economic data. Inflation is expected to stabilise at 1,5 % in 2006, before falling to just above 1 % in 2007, which seems to be on the low side also compared to the Commission services' autumn forecast.

| (7) | The authorities' main strategic objective is to achieve sound public finances to support sustainable economic growth and absorb the costs of ageing. After the substantial consolidation achieved in 2004 and 2005, the 2005 update of the stability programme projects the general government deficit to increase to 1,5 % in 2006 and subsequently to stabilise at around 1,1 % of GDP, with the primary surplus following a similar pattern. Compared with the previous programme which foresaw a continued deficit reduction, the new update takes into account the better-than-expected deficit outcome in 2005 of 1,2 % of GDP and foresees, against the background of a comparable macroeconomic scenario from 2006 onwards, a broad stabilisation at this level (except for a deterioration in 2006). |
| --- | --- |

(7)

The authorities' main strategic objective is to achieve sound public finances to support sustainable economic growth and absorb the costs of ageing. After the substantial consolidation achieved in 2004 and 2005, the 2005 update of the stability programme projects the general government deficit to increase to 1,5 % in 2006 and subsequently to stabilise at around 1,1 % of GDP, with the primary surplus following a similar pattern. Compared with the previous programme which foresaw a continued deficit reduction, the new update takes into account the better-than-expected deficit outcome in 2005 of 1,2 % of GDP and foresees, against the background of a comparable macroeconomic scenario from 2006 onwards, a broad stabilisation at this level (except for a deterioration in 2006).

| (8) | Based on Commission services' calculations on the basis of the programme according to the commonly agreed methodology, the structural balance, after having improved markedly from a deficit of 2,25 % of GDP in 2003 when the excessive deficit occurred to a balanced position in 2005, reflecting a strong adjustment effort in line with the Stability and Growth Pact, would deteriorate to a deficit of nearly 0,75 % of GDP in 2006 against a diminishing although still negative output gap. Half of this structural deterioration reflects the fact that companies paid higher-than-expected tax advances in 2005 to take advantage of above-market interest rates paid by the Government, with an expected mirror effect in 2006. The structural deficit balance would stabilise thereafter at a deficit slightly above half a percentage point of GDP. The programme sets the medium-term objective (hereafter MTO) for the budgetary position of a structural (i.e. cyclically-adjusted and net of one-off or other temporary measures) balance between -0,5 % and -1 % of GDP. This MTO is at an appropriate level because it lies within the range indicated for euro area and ERM II Member States in the Stability and Growth Pact and the code of conduct and adequately reflects the debt ratio and average potential output growth in the long term. Despite the projected fiscal deterioration in 2006, the deficit is expected to remain within the MTO range as set in the programme. |
| --- | --- |

(8)

Based on Commission services' calculations on the basis of the programme according to the commonly agreed methodology, the structural balance, after having improved markedly from a deficit of 2,25 % of GDP in 2003 when the excessive deficit occurred to a balanced position in 2005, reflecting a strong adjustment effort in line with the Stability and Growth Pact, would deteriorate to a deficit of nearly 0,75 % of GDP in 2006 against a diminishing although still negative output gap. Half of this structural deterioration reflects the fact that companies paid higher-than-expected tax advances in 2005 to take advantage of above-market interest rates paid by the Government, with an expected mirror effect in 2006. The structural deficit balance would stabilise thereafter at a deficit slightly above half a percentage point of GDP. The programme sets the medium-term objective (hereafter MTO) for the budgetary position of a structural (i.e. cyclically-adjusted and net of one-off or other temporary measures) balance between -0,5 % and -1 % of GDP. This MTO is at an appropriate level because it lies within the range indicated for euro area and ERM II Member States in the Stability and Growth Pact and the code of conduct and adequately reflects the debt ratio and average potential output growth in the long term. Despite the projected fiscal deterioration in 2006, the deficit is expected to remain within the MTO range as set in the programme.

| (9) | The risks to the budgetary strategy appear broadly balanced and the budget outcome could be even somewhat better than expected beyond 2006. On the one hand, current indicators suggest a strong pick-up in economic activity, the 2005 deficit is now expected to be substantially lower and, beyond 2006, there exists a positive risk to the programme's budgetary projection if the oil price turns out higher than anticipated in the programme since the budget would benefit from higher gas revenues while the growth forecast is already consistent with such a higher oil price. On the other hand, some of the better-than-expected outcome in 2005 may also have negative carry-over effects. Moreover, it is not yet clear whether the expected budgetary savings from the reforms in the health and social security systems that came into force at the beginning of 2006 will be fully achieved as the behavioural effects of the reforms cannot yet be assessed with accuracy. |
| --- | --- |

(9)

The risks to the budgetary strategy appear broadly balanced and the budget outcome could be even somewhat better than expected beyond 2006. On the one hand, current indicators suggest a strong pick-up in economic activity, the 2005 deficit is now expected to be substantially lower and, beyond 2006, there exists a positive risk to the programme's budgetary projection if the oil price turns out higher than anticipated in the programme since the budget would benefit from higher gas revenues while the growth forecast is already consistent with such a higher oil price. On the other hand, some of the better-than-expected outcome in 2005 may also have negative carry-over effects. Moreover, it is not yet clear whether the expected budgetary savings from the reforms in the health and social security systems that came into force at the beginning of 2006 will be fully achieved as the behavioural effects of the reforms cannot yet be assessed with accuracy.

| (10) | Taking into account the risk assessment above, the budgetary strategy outlined in the programme seems sufficient to ensure that the programme's MTO is maintained throughout the programme period. The projected structural balance in every year falls within the MTO range as specified in the programme and is better than the minimum benchmark of a structural deficit of around 1 % of GDP, which ensures a sufficient margin against breaching the 3 % of GDP threshold in case of adverse cyclical developments. Nevertheless, despite the strong economic recovery, there is a deterioration of 0,75 % of GDP in the structural balance in 2006 although this is partly due to exceptional factors. If the recent information on the positive outcome in 2005 is confirmed, the fiscal deterioration implied by the 2006 target could even be larger, unless the authorities take measures to contain it. |
| --- | --- |

(10)

Taking into account the risk assessment above, the budgetary strategy outlined in the programme seems sufficient to ensure that the programme's MTO is maintained throughout the programme period. The projected structural balance in every year falls within the MTO range as specified in the programme and is better than the minimum benchmark of a structural deficit of around 1 % of GDP, which ensures a sufficient margin against breaching the 3 % of GDP threshold in case of adverse cyclical developments. Nevertheless, despite the strong economic recovery, there is a deterioration of 0,75 % of GDP in the structural balance in 2006 although this is partly due to exceptional factors. If the recent information on the positive outcome in 2005 is confirmed, the fiscal deterioration implied by the 2006 target could even be larger, unless the authorities take measures to contain it.

| (11) | The programme projects the government debt to broadly stabilise in 2006 at 54,5 % of GDP before gradually decreasing to around 53 % in 2008. These projections are very close to those of the Commission services. Risks to the debt forecasts stem primarily from the risks to the deficit projections, which, as stated above, appear broadly balanced. |
| --- | --- |

(11)

The programme projects the government debt to broadly stabilise in 2006 at 54,5 % of GDP before gradually decreasing to around 53 % in 2008. These projections are very close to those of the Commission services. Risks to the debt forecasts stem primarily from the risks to the deficit projections, which, as stated above, appear broadly balanced.

| (12) | With regard to the sustainability of public finances, the Netherlands appears to be at medium risk on grounds of the projected budgetary costs of ageing populations. The current level of debt is under the Treaty value of 60 % of GDP and the recent improvement of the budgetary situation in the Netherlands has helped alleviate risks to long-term sustainability. The implementation of recent reforms of the disability scheme will also contribute to curb long-term public spending. However, even fully taken into account, the projected future rise in revenue, notably due to delayed taxation of pension are not sufficient to compensate the rise in public expenditure over the long-term. Further budgetary consolidation may therefore be necessary to fully offset the impact of ageing. |
| --- | --- |

(12)

With regard to the sustainability of public finances, the Netherlands appears to be at medium risk on grounds of the projected budgetary costs of ageing populations. The current level of debt is under the Treaty value of 60 % of GDP and the recent improvement of the budgetary situation in the Netherlands has helped alleviate risks to long-term sustainability. The implementation of recent reforms of the disability scheme will also contribute to curb long-term public spending. However, even fully taken into account, the projected future rise in revenue, notably due to delayed taxation of pension are not sufficient to compensate the rise in public expenditure over the long-term. Further budgetary consolidation may therefore be necessary to fully offset the impact of ageing.

| (13) | The envisaged measures in the area of public finances are broadly consistent with the broad economic policy guidelines included in the integrated guidelines for the period 2005-2008. In particular they are in line with the integrated guideline on securing economic stability by maintaining the medium-term budgetary objective over the economic cycle. The programme also complies with the integrated guideline on safeguarding economic sustainability in view of the projected costs of ageing population. |
| --- | --- |

(13)

The envisaged measures in the area of public finances are broadly consistent with the broad economic policy guidelines included in the integrated guidelines for the period 2005-2008. In particular they are in line with the integrated guideline on securing economic stability by maintaining the medium-term budgetary objective over the economic cycle. The programme also complies with the integrated guideline on safeguarding economic sustainability in view of the projected costs of ageing population.

| (14) | The National Reform Programme of the Netherlands, submitted on October 14, 2005 in the context of the renewed Lisbon strategy for growth and jobs, identifies improving labour supply; faster growth in labour productivity through strengthening R&D and innovation; and improving price competitiveness through containing labour costs as challenges. Of these, strengthening R&D and innovation are expected to have significant implications for public finances. However, given limited information especially on the timing of the structural reforms in these areas, it is difficult to ascertain whether the actions outlined in the National Reform Programme are fully reflected in the budgetary projections of the stability programme. The measures in the area of public finances envisaged in the stability programme seem to be broadly in line with the actions foreseen in the National Reform Programme. |
| --- | --- |

(14)

The National Reform Programme of the Netherlands, submitted on October 14, 2005 in the context of the renewed Lisbon strategy for growth and jobs, identifies improving labour supply; faster growth in labour productivity through strengthening R&D and innovation; and improving price competitiveness through containing labour costs as challenges. Of these, strengthening R&D and innovation are expected to have significant implications for public finances. However, given limited information especially on the timing of the structural reforms in these areas, it is difficult to ascertain whether the actions outlined in the National Reform Programme are fully reflected in the budgetary projections of the stability programme. The measures in the area of public finances envisaged in the stability programme seem to be broadly in line with the actions foreseen in the National Reform Programme.

In view of the above assessment, the Council welcomes the efforts of the Dutch Government in 2005 to bring the deficit further below the 3 % of GDP reference value, after the prompt correction of the excessive deficit, as well as the fact that the authorities plan to respect the medium-term objective throughout the programme period. The Council invites the Netherlands, also in view of better-than-expected results in 2005 to maintain a strong budgetary position in 2006 and thereafter.

Comparison of key macroeconomic and budgetary projections

| | 2004 | 2005 | 2006 | 2007 | 2008 |
| --- | --- | --- | --- | --- | --- |
| Real GDP
  (% change) | SP Dec 2005 (3) | 1,7 | 0,75 | 2,5 | 2,5 | 2,25 |
| COM Nov 2005 | 1,7 | 0,5 | 2,0 | 2,4 | n.a. |
| SP Nov 2004 | 1,25 | 1,5 | 2,5 | 2,5 | n.a. |
| HICP inflation
  (%) | SP Dec 2005 | 1,4 | 1,5 | 1,5 | 1,1 | n.a. |
| COM Nov 2005 | 1,4 | 1,7 | 2,0 | 1,9 | n.a. |
| SP Nov 2004 | 1,25 | 1,25 | 1,5 | 1,5 | n.a. |
| Output gap
  (% of potential GDP) | SP Dec 2005 (4) | – 1,5 | – 2,3 | – 1,5 | – 1,1 | – 0,9 |
| COM Nov 2005 (6) | – 1,3 | – 2,2 | – 1,9 | – 1,4 | n.a. |
| SP Nov 2004 | – 2,1 | – 2,2 | – 1,5 | – 0,9 | n.a. |
| General government balance
  (% of GDP) | SP Dec 2005 | – 2,1 | – 1,2 | – 1,5 | – 1,2 | – 1,1 |
| COM Nov 2005 | – 2,1 | – 1,8 | – 1,9 | – 1,5 | n.a. |
| SP Nov 2004 | – 3,0 | – 2,6 | – 2,1 | – 1,9 | n.a. |
| Primary balance
  (% of GDP) | SP Dec 2005 | 0,6 | 1,4 | 1,1 | 1,4 | 1,5 |
| COM Nov 2005 | 0,5 | 0,7 | 0,6 | 1,0 | n.a. |
| SP Nov 2004 | – 0,1 | 0,3 | 0,7 | 0,8 | n.a. |
| Cyclically-adjusted balance = Structural balance (5)

  (% of GDP) | SP Dec 2005 (4) | – 1,3 | 0,0 | – 0,7 | – 0,6 | – 0,6 |
| COM Nov 2005 | – 1,4 | – 0,6 | – 0,8 | – 0,7 | n.a. |
| SP Nov 2004 | – 1,6 | – 1,2 | – 1,2 | – 1,3 | n.a. |
| Government gross debt
  (% of GDP) | SP Dec 2005 | 53,1 | 54,4 | 54,5 | 53,9 | 53,1 |
| COM Nov 2005 | 53,1 | 54,0 | 54,2 | 53,8 | n.a. |
| SP Nov 2004 | 56,3 | 58,1 | 58,6 | 58,3 | n.a. |
| Stability programme (SP); Commission services' autumn 2005 economic forecasts (COM); Commission services' calculations. |

2004

2005

2006

2007

2008

Real GDP

(% change)

SP Dec 2005 (3)

1,7

0,75

2,5

2,5

2,25

COM Nov 2005

1,7

0,5

2,0

2,4

n.a.

SP Nov 2004

1,25

1,5

2,5

2,5

n.a.

HICP inflation

(%)

SP Dec 2005

1,4

1,5

1,5

1,1

n.a.

COM Nov 2005

1,4

1,7

2,0

1,9

n.a.

SP Nov 2004

1,25

1,25

1,5

1,5

n.a.

Output gap

(% of potential GDP)

SP Dec 2005 (4)

– 1,5

– 2,3

– 1,5

– 1,1

– 0,9

COM Nov 2005 (6)

– 1,3

– 2,2

– 1,9

– 1,4

n.a.

SP Nov 2004

– 2,1

– 2,2

– 1,5

– 0,9

n.a.

General government balance

(% of GDP)

SP Dec 2005

– 2,1

– 1,2

– 1,5

– 1,2

– 1,1

COM Nov 2005

– 2,1

– 1,8

– 1,9

– 1,5

n.a.

SP Nov 2004

– 3,0

– 2,6

– 2,1

– 1,9

n.a.

Primary balance

(% of GDP)

SP Dec 2005

0,6

1,4

1,1

1,4

1,5

COM Nov 2005

0,5

0,7

0,6

1,0

n.a.

SP Nov 2004

– 0,1

0,3

0,7

0,8

n.a.

Cyclically-adjusted balance = Structural balance (5)

(% of GDP)

SP Dec 2005 (4)

– 1,3

0,0

– 0,7

– 0,6

– 0,6

COM Nov 2005

– 1,4

– 0,6

– 0,8

– 0,7

n.a.

SP Nov 2004

– 1,6

– 1,2

– 1,2

– 1,3

n.a.

Government gross debt

(% of GDP)

SP Dec 2005

53,1

54,4

54,5

53,9

53,1

COM Nov 2005

53,1

54,0

54,2

53,8

n.a.

SP Nov 2004

56,3

58,1

58,6

58,3

n.a.

Stability programme (SP); Commission services' autumn 2005 economic forecasts (COM); Commission services' calculations.

---

(1)  OJ L 209, 2.8.1997, p. 1. Regulation as amended by Regulation (EC) No 1055/2005 (OJ L 174, 7.7.2005, p. 1). The documents referred to in this text can be found at the following website:

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

(2)  Some chapters are missing (overall policy framework) or are incomplete (quality of public finances, structural reforms). Compulsory data regarding the basic assumptions were missing in the programme, but were subsequently supplied by the Dutch authorities. An important part of optional data prescribed by the new code of conduct is missing.

(3)  For further calculations, the corresponding point estimates have been used.

(4)  Commission services calculations on the basis of the information in the programme.

(5)  As there are no one-off and other temporary measures in the programme, the cyclically-adjusted balance and the structural balance are identical.

(6)  Based on estimated potential growth of 1.5%, 1.6%, 1.7% and 1.8% respectively in the period 2004-2007.

Source:

Stability programme (SP); Commission services' autumn 2005 economic forecasts (COM); Commission services' calculations.

---

| 5.4.2006 | EN | Official Journal of the European Union | C 82/31 |
| --- | --- | --- | --- |

5.4.2006

EN

Official Journal of the European Union

C 82/31

---

COUNCIL OPINION

of 14 March 2006

on the updated stability programme of Portugal, 2005-2009

(2006/C 82/08)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community,

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 14 March 2006 the Council examined the updated stability programme of Portugal, which covers the period 2005 to 2009. |
| --- | --- |

(1)

On 14 March 2006 the Council examined the updated stability programme of Portugal, which covers the period 2005 to 2009.

| (2) | After averaging 4 % per year over the period 1995-2000, accompanied by a pro-cyclical fiscal expansion, Portuguese economic growth declined significantly to only 0,5 % per year between 2001 and 2005, lagging behind the euro area average. GDP per capita in purchasing power terms is expected to have fallen below 70 % of the area average in 2005. Apart from adverse cyclical influences from abroad, the subdued performance reflects a weak competitive position, which explains the sizeable external deficit, and the low potential growth. The fiscal position has been weak since the turn of the decade, with the persistence of a high structural deficit. |
| --- | --- |

(2)

After averaging 4 % per year over the period 1995-2000, accompanied by a pro-cyclical fiscal expansion, Portuguese economic growth declined significantly to only 0,5 % per year between 2001 and 2005, lagging behind the euro area average. GDP per capita in purchasing power terms is expected to have fallen below 70 % of the area average in 2005. Apart from adverse cyclical influences from abroad, the subdued performance reflects a weak competitive position, which explains the sizeable external deficit, and the low potential growth. The fiscal position has been weak since the turn of the decade, with the persistence of a high structural deficit.

| (3) | On 20 September 2005, the Council decided that Portugal was in excessive deficit. According to the Council recommendation under Article 104(7) of the same date, the excessive deficit has to be corrected by 2008. Following the expiry of the six-month period foreseen by the recommendation, the Commission is due to carry out an assessment of the action taken by the Portuguese authorities in order to achieve the 2006 deficit target. In its opinion of 12 July 2005 on the previous update of the stability programme, covering the period 2005-2009, the Council invited Portugal to limit the deterioration of the fiscal position in 2005; achieve a sustained correction of the excessive deficit, taking a substantial step in 2006; bring the gross debt ratio onto a firm downward path; control the evolution of expenditure and improve the quality and ensure the long-term sustainability of public finances; and to further improve the processing of general government data. |
| --- | --- |

(3)

On 20 September 2005, the Council decided that Portugal was in excessive deficit. According to the Council recommendation under Article 104(7) of the same date, the excessive deficit has to be corrected by 2008. Following the expiry of the six-month period foreseen by the recommendation, the Commission is due to carry out an assessment of the action taken by the Portuguese authorities in order to achieve the 2006 deficit target. In its opinion of 12 July 2005 on the previous update of the stability programme, covering the period 2005-2009, the Council invited Portugal to limit the deterioration of the fiscal position in 2005; achieve a sustained correction of the excessive deficit, taking a substantial step in 2006; bring the gross debt ratio onto a firm downward path; control the evolution of expenditure and improve the quality and ensure the long-term sustainability of public finances; and to further improve the processing of general government data.

| (4) | In 2005, the general government deficit is estimated to have reached 6 % of GDP according to the Commission services' autumn 2005 forecast, against a target of 6,2 % of GDP set in the previous update of June 2005. This small difference is entirely due to an upward revision of the GDP series. In addition to the increase in expenditure, the sharp deterioration from the previous years was largely due to the government no longer raising revenues through sizeable one-off measures. |
| --- | --- |

(4)

In 2005, the general government deficit is estimated to have reached 6 % of GDP according to the Commission services' autumn 2005 forecast, against a target of 6,2 % of GDP set in the previous update of June 2005. This small difference is entirely due to an upward revision of the GDP series. In addition to the increase in expenditure, the sharp deterioration from the previous years was largely due to the government no longer raising revenues through sizeable one-off measures.

| (5) | The programme provides the compulsory data required for stability and convergence programmes specified in the new code of conduct, although it deviates on material points from the model structure (2). |
| --- | --- |

(5)

The programme provides the compulsory data required for stability and convergence programmes specified in the new code of conduct, although it deviates on material points from the model structure (2).

| (6) | The macroeconomic scenario presented in the update projects real GDP growth to pick up over the programme period, from 0,5 % in 2005 to 1,1 % in 2006 and 1,8 % in 2007 to eventually 3 % in 2009. Growth is assumed to be driven by domestic demand and exports, although the external contribution is expected to be close to neutral over the programme period. The negative output gap is foreseen to narrow from around -2,5 % of GDP in 2006-2007 to less than -1 % at the programme horizon. Assessed against currently available information, the programme's growth assumptions are favourable, especially in the outer years of the programme. Inflationary pressures are foreseen to remain low, but there are some risks for 2006 and towards the end of the programme period. The large external deficit is expected to remain broadly unchanged. |
| --- | --- |

(6)

The macroeconomic scenario presented in the update projects real GDP growth to pick up over the programme period, from 0,5 % in 2005 to 1,1 % in 2006 and 1,8 % in 2007 to eventually 3 % in 2009. Growth is assumed to be driven by domestic demand and exports, although the external contribution is expected to be close to neutral over the programme period. The negative output gap is foreseen to narrow from around -2,5 % of GDP in 2006-2007 to less than -1 % at the programme horizon. Assessed against currently available information, the programme's growth assumptions are favourable, especially in the outer years of the programme. Inflationary pressures are foreseen to remain low, but there are some risks for 2006 and towards the end of the programme period. The large external deficit is expected to remain broadly unchanged.

| (7) | The programme aims at a lasting correction of the large fiscal imbalance, reducing the general government deficit to below the 3 % of GDP reference value in the year 2008 and pursuing further fiscal consolidation thereafter. It envisages the consolidation of public finances to take place on the back of structural measures with substantial steps in each year. After widening to 6 % of GDP in 2005, the general government deficit is targeted to decline to 4,6 % in 2006 and further to 3,7 % of GDP in 2007, 2,6 % in 2008 and 1,5 % of GDP in 2009. The projected time profile for the primary balance is similar, with an improvement from a deficit of 3,2 % of GDP to a surplus of 1,5 % of GDP between 2005 and 2009. The fiscal adjustment is helped by both the revenue and the expenditure side. In the short term, consolidation relies mainly on additional revenues generated by higher tax rates and improved tax collection. Expenditure restraint extending to all major primary expenditure categories is expected to support fiscal consolidation in a progressive manner over the period, with the most sizeable savings to come from changes in public administration, including personnel, and changes in social protection schemes. Compared with the previous update, the December 2005 update of the stability programme largely confirms the planned adjustment against lower growth assumptions, although still favourable against currently available information. |
| --- | --- |

(7)

The programme aims at a lasting correction of the large fiscal imbalance, reducing the general government deficit to below the 3 % of GDP reference value in the year 2008 and pursuing further fiscal consolidation thereafter. It envisages the consolidation of public finances to take place on the back of structural measures with substantial steps in each year. After widening to 6 % of GDP in 2005, the general government deficit is targeted to decline to 4,6 % in 2006 and further to 3,7 % of GDP in 2007, 2,6 % in 2008 and 1,5 % of GDP in 2009. The projected time profile for the primary balance is similar, with an improvement from a deficit of 3,2 % of GDP to a surplus of 1,5 % of GDP between 2005 and 2009. The fiscal adjustment is helped by both the revenue and the expenditure side. In the short term, consolidation relies mainly on additional revenues generated by higher tax rates and improved tax collection. Expenditure restraint extending to all major primary expenditure categories is expected to support fiscal consolidation in a progressive manner over the period, with the most sizeable savings to come from changes in public administration, including personnel, and changes in social protection schemes. Compared with the previous update, the December 2005 update of the stability programme largely confirms the planned adjustment against lower growth assumptions, although still favourable against currently available information.

| (8) | Over the programme period, the structural balance (i.e. the cyclically-adjusted balance net of one-off and other temporary measures) calculated by the Commission services on the basis of the information in the programme according to the commonly agreed methodology is planned to improve by some 3

  percentage points. A tight fiscal stance is foreseen to prevail over the entire programme period, with some front-loading: the structural deficit is targeted to move from some 5 % of GDP in 2005 to around 3,5 % of GDP in 2006, and further to almost 2,5 % in 2007, 1,75 % in 2008 and 1,25 % of GDP in 2009. The planned fiscal efforts are projected to take place against a backdrop of a narrowing negative output gap. The programme identifies a medium-term objective (MTO) for the budgetary position as meant in the Stability and Growth Pact of ‘at least -0,5 % of GDP’, which it does not aim to achieve within the programme period. As the programme's MTO is more demanding than the minimum benchmark (estimated at a deficit of around 1 % of GDP), its achievement should fulfil the aim of providing a safety margin against the occurrence of an excessive deficit. The programme's MTO is at an appropriate level under the current assessment, because it lies within the range indicated for euro area and ERM II Member States in the Stability and Growth Pact and the code of conduct and adequately reflects the debt ratio and average potential output growth in the long term. |
| --- | --- |

(8)

Formula

| (9) | The budgetary outcomes could be worse than projected in the programme. While the programme assumptions about the tax intensity of economic activity seem broadly plausible, the growth outlook underpinning the budgetary targets is favourable, especially in the outer years. Moreover, the update outlines an ambitious medium-term plan to curb expenditure growth and several measures have been recently enacted, but nevertheless important measures related to the strategy still have to be defined and implemented, in particular changes in public administration which are expected to yield substantial savings from 2007 onwards. Their full implementation will be crucial for the attainment of the budgetary targets. Finally, the programme outlines measures that should improve the framework of budgetary execution and control, which if properly implemented are expected to contribute to the achievement of the budgetary objectives. |
| --- | --- |

(9)

The budgetary outcomes could be worse than projected in the programme. While the programme assumptions about the tax intensity of economic activity seem broadly plausible, the growth outlook underpinning the budgetary targets is favourable, especially in the outer years. Moreover, the update outlines an ambitious medium-term plan to curb expenditure growth and several measures have been recently enacted, but nevertheless important measures related to the strategy still have to be defined and implemented, in particular changes in public administration which are expected to yield substantial savings from 2007 onwards. Their full implementation will be crucial for the attainment of the budgetary targets. Finally, the programme outlines measures that should improve the framework of budgetary execution and control, which if properly implemented are expected to contribute to the achievement of the budgetary objectives.

| (10) | Taking into account the balance of risks, the correction of the excessive deficit by the 2008 deadline set by the Council hinges upon an effective implementation of all the measures announced in the programme for 2006, and of substantial corrective measures for 2007 and beyond. Provided the risks to the budgetary targets highlighted above are duly addressed, the pace of the adjustment towards the programme's MTO is fully in line with the Stability and Growth Pact, yet the MTO will not be achieved by the end of the programme period. Providing a sufficient safety margin against breaching the 3 % of GDP deficit threshold with normal macroeconomic fluctuations in the year following the planned correction of the excessive deficit, requires that the risks to the budgetary targets are properly addressed. |
| --- | --- |

(10)

Taking into account the balance of risks, the correction of the excessive deficit by the 2008 deadline set by the Council hinges upon an effective implementation of all the measures announced in the programme for 2006, and of substantial corrective measures for 2007 and beyond. Provided the risks to the budgetary targets highlighted above are duly addressed, the pace of the adjustment towards the programme's MTO is fully in line with the Stability and Growth Pact, yet the MTO will not be achieved by the end of the programme period. Providing a sufficient safety margin against breaching the 3 % of GDP deficit threshold with normal macroeconomic fluctuations in the year following the planned correction of the excessive deficit, requires that the risks to the budgetary targets are properly addressed.

| (11) | The debt ratio is estimated to have reached 65,5 % of GDP in 2005, above the 60 % of GDP Treaty reference value. The programme projects the debt ratio to further increase to some 69 % of GDP in 2007 and to decline thereafter to slightly above 66 % of GDP in 2009. The evolution of the debt ratio might be less favourable than projected in the programme given the risks to the budgetary targets mentioned above, the uncertainty about the stock-flow adjustment and the possible lower-than-expected economic growth. In view of this risk assessment, ensuring the attainment of the budgetary targets specified in the programme seems necessary to achieve a sufficiently diminishing debt ratio towards the reference value. |
| --- | --- |

(11)

The debt ratio is estimated to have reached 65,5 % of GDP in 2005, above the 60 % of GDP Treaty reference value. The programme projects the debt ratio to further increase to some 69 % of GDP in 2007 and to decline thereafter to slightly above 66 % of GDP in 2009. The evolution of the debt ratio might be less favourable than projected in the programme given the risks to the budgetary targets mentioned above, the uncertainty about the stock-flow adjustment and the possible lower-than-expected economic growth. In view of this risk assessment, ensuring the attainment of the budgetary targets specified in the programme seems necessary to achieve a sufficiently diminishing debt ratio towards the reference value.

| (12) | With regard to the sustainability of public finances, Portugal appears to be at high risk on grounds of the projected budgetary costs of ageing populations. The currently high level of gross debt and the weak budgetary position indicate the necessity for implementing rigorously the planned consolidation of public finances over the medium-term and to ensure the attainment of the budgetary targets in order to reduce risks to public finance sustainability. However, the projected increases in pension and health care expenditures over the projection period clearly indicate the necessity of a comprehensive strategy in dealing with the challenge posed by ageing populations that goes beyond improving the currently weak budgetary position. The ongoing introduction of changes to the pension and health-care systems should go some way in making these systems more sustainable. However, further reforms are required to curb the projected growth of age-related expenditures. |
| --- | --- |

(12)

With regard to the sustainability of public finances, Portugal appears to be at high risk on grounds of the projected budgetary costs of ageing populations. The currently high level of gross debt and the weak budgetary position indicate the necessity for implementing rigorously the planned consolidation of public finances over the medium-term and to ensure the attainment of the budgetary targets in order to reduce risks to public finance sustainability. However, the projected increases in pension and health care expenditures over the projection period clearly indicate the necessity of a comprehensive strategy in dealing with the challenge posed by ageing populations that goes beyond improving the currently weak budgetary position. The ongoing introduction of changes to the pension and health-care systems should go some way in making these systems more sustainable. However, further reforms are required to curb the projected growth of age-related expenditures.

| (13) | The envisaged measures in the area of public finances are broadly consistent with the broad economic policy guidelines included in the integrated guidelines for the period 2005-2008. In particular, they aim at a correction of the excessive deficit in a structural way as further specified in the Council recommendation under Article 104(7) of 20 September 2005 and the outlined fiscal policy is expected to contribute to a correction of the external deficit. Nevertheless, it should be noted that the planned evolution of government debt in the first half of the programme period represents a deviation from what is expected in the guidelines. |
| --- | --- |

(13)

The envisaged measures in the area of public finances are broadly consistent with the broad economic policy guidelines included in the integrated guidelines for the period 2005-2008. In particular, they aim at a correction of the excessive deficit in a structural way as further specified in the Council recommendation under Article 104(7) of 20 September 2005 and the outlined fiscal policy is expected to contribute to a correction of the external deficit. Nevertheless, it should be noted that the planned evolution of government debt in the first half of the programme period represents a deviation from what is expected in the guidelines.

| (14) | The National Reform Programme of Portugal, submitted on 21 October 2005 in the context of the renewed Lisbon strategy for growth and jobs, identifies the following challenges in the area of public finances: (i) enhancing economic growth and promoting the sustainability of public finances; and (ii) the reform of public administration. The measures envisaged in the stability programme are in line with the actions foreseen in the National Reform Programme in the area of public finances. In fact, the NRP took fully on board the substance of June 2005 update. The most recent update of the stability programme confirms the strategy. However, it does not spell out the budgetary implications of the actions outlined in the National Reform Programme in the various policy areas. |
| --- | --- |

(14)

The National Reform Programme of Portugal, submitted on 21 October 2005 in the context of the renewed Lisbon strategy for growth and jobs, identifies the following challenges in the area of public finances: (i) enhancing economic growth and promoting the sustainability of public finances; and (ii) the reform of public administration. The measures envisaged in the stability programme are in line with the actions foreseen in the National Reform Programme in the area of public finances. In fact, the NRP took fully on board the substance of June 2005 update. The most recent update of the stability programme confirms the strategy. However, it does not spell out the budgetary implications of the actions outlined in the National Reform Programme in the various policy areas.

In view of the above assessment, the Council notes that the programme is broadly consistent with a correction of the excessive deficit by 2008, subject to a full implementation of the measures announced in the programme that need to be reinforced for the years 2007 and beyond to accommodate the downward risks to the budgetary targets. In the light of the recommendations under Article 104(7) of 20 September 2005, the Council invites Portugal to:

| (i) | adopt and implement with rigour the structural measures envisaged in the programme in order to ensure the correction of the excessive deficit by 2008 in a credible and sustainable manner; ensure a continued adjustment towards the MTO, once the excessive deficit has been corrected, in line with the SGP requirements; and create margins to deal with the budgetary impact of possible lower-than-projected economic growth; |
| --- | --- |

(i)

adopt and implement with rigour the structural measures envisaged in the programme in order to ensure the correction of the excessive deficit by 2008 in a credible and sustainable manner; ensure a continued adjustment towards the MTO, once the excessive deficit has been corrected, in line with the SGP requirements; and create margins to deal with the budgetary impact of possible lower-than-projected economic growth;

| (ii) | enact decisively the planned measures to control expenditure; improve the budgetary process at all levels of general government, possibly through the more extensive use of binding expenditure ceilings and, as outlined in the programme, by strengthening mechanisms of monitoring, controlling and reporting expenditure and revenue; |
| --- | --- |

(ii)

enact decisively the planned measures to control expenditure; improve the budgetary process at all levels of general government, possibly through the more extensive use of binding expenditure ceilings and, as outlined in the programme, by strengthening mechanisms of monitoring, controlling and reporting expenditure and revenue;

| (iii) | improve the long-term sustainability of public finances, in particular by implementing the measures already envisaged in the programme and by enacting further reforms in the area of pensions and health care; |
| --- | --- |

(iii)

improve the long-term sustainability of public finances, in particular by implementing the measures already envisaged in the programme and by enacting further reforms in the area of pensions and health care;

| (iv) | bring the government gross debt ratio onto a firm downward path by ensuring that it reflects both the progress in the reduction of the government deficit and the projected privatisation proceeds, and by considering carefully the impact on debt of major public investment projects, including those in partnership with the private sector. |
| --- | --- |

(iv)

bring the government gross debt ratio onto a firm downward path by ensuring that it reflects both the progress in the reduction of the government deficit and the projected privatisation proceeds, and by considering carefully the impact on debt of major public investment projects, including those in partnership with the private sector.

Comparison of key macroeconomic and budgetary projections

| | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 |
| --- | --- | --- | --- | --- | --- | --- |
| Real GDP
  (% change) | SP Dec 2005 | 1,2 | 0,5 | 1,1 | 1,8 | 2,4 | 3,0 |
| COM Nov 2005 | 1,2 | 0,4 | 0,8 | 1,2 | n.a. | n.a. |
| SP Jun 2005 | 1,0 | 0,8 | 1,4 | 2,2 | 2,6 | 3,0 |
| HICP inflation
  (%) | SP Dec 2005 (9) | 2,4 | 2,3 | 2,3 | 2,2 | 2,2 | 2,1 |
| COM Nov 2005 | 2,5 | 2,2 | 2,7 | 2,2 | n.a. | n.a. |
| SP Jun 2005 | 2,5 | 2,5 | 2,9 | 2,5 | 2,5 | 2,4 |
| Output gap
  (% of potential GDP) | SP Dec 2005 (3) | – 1,5 | – 2,3 | – 2,7 | – 2,5 | – 1,8 | – 0,7 |
| COM Nov 2005 (8) | – 1,3 | – 2,0 | – 2,4 | – 2,6 | n.a. | n.a. |
| SP Jun 2005 (3) | – 2,1 | – 2,7 | – 2,8 | – 2,3 | – 1,6 | – 0,7 |
| General government balance
  (% of GDP) | SP Dec 2005 | – 3,0 | – 6,0 | – 4,6 | – 3,7 | – 2,6 | – 1,5 |
| COM Nov 2005 | – 3,0 | – 6,0 | – 5,0 | – 4,8 | n.a. | n.a. |
| SP Jun 2005 | – 2,9 | – 6,2 | – 4,8 | – 3,9 | – 2,8 | – 1,6 |
| Primary balance
  (% of GDP) | SP Dec 2005 | – 0,3 | – 3,2 | – 1,7 | – 0,6 | 0,6 | 1,5 |
| COM Nov 2005 | – 0,3 | – 3,1 | – 2,0 | – 1,6 | n.a. | n.a. |
| SP Jun 2005 | – 0,1 | – 3,3 | – 1,6 | – 0,5 | 0,7 | 1,8 |
| Cyclically-adjusted balance
  (% of GDP) | SP Dec 2005 (3) | – 2,3 | – 5,0 | – 3,4 | – 2,6 | – 1,8 | – 1,2 |
| COM Nov 2005 | – 2,4 | – 5,1 | – 3,8 | – 3,6 | n.a. | n.a. |
| SP Jun 2005 (3) | – 2,2 | – 5,3 | – 3,8 | – 3,1 | – 2,3 | – 1,4 |
| Structural balance (4)

  (% of GDP) | SP Dec 2005 (5) | n.a. | – 5,0 | – 3,4 | – 2,6 | – 1,8 | – 1,2 |
| COM Nov 2005 (6) | – 4,6 | – 5,5 | – 4,2 | – 3,7 | n.a. | n.a. |
| SP Jun 2005 (7) | – 4,5 | – 5,5 | – 3,8 | – 3,1 | – 2,3 | – 1,4 |
| Government gross debt
  (% of GDP) | SP Dec 2005 | 59,4 | 65,5 | 68,7 | 69,3 | 68,4 | 66,2 |
| COM Nov 2005 | 59,4 | 65,9 | 69,8 | 72,1 | n.a. | n.a. |
| SP Jun 2005 | 61,9 | 66,5 | 67,5 | 67,8 | 66,8 | 64,5 |
| Stability programme (SP); Commission services' autumn 2005 economic forecasts (COM); Commission services' calculations |

2004

2005

2006

2007

2008

2009

Real GDP

(% change)

SP Dec 2005

1,2

0,5

1,1

1,8

2,4

3,0

COM Nov 2005

1,2

0,4

0,8

1,2

n.a.

n.a.

SP Jun 2005

1,0

0,8

1,4

2,2

2,6

3,0

HICP inflation

(%)

SP Dec 2005 (9)

2,4

2,3

2,3

2,2

2,2

2,1

COM Nov 2005

2,5

2,2

2,7

2,2

n.a.

n.a.

SP Jun 2005

2,5

2,5

2,9

2,5

2,5

2,4

Output gap

(% of potential GDP)

SP Dec 2005 (3)

– 1,5

– 2,3

– 2,7

– 2,5

– 1,8

– 0,7

COM Nov 2005 (8)

– 1,3

– 2,0

– 2,4

– 2,6

n.a.

n.a.

SP Jun 2005 (3)

– 2,1

– 2,7

– 2,8

– 2,3

– 1,6

– 0,7

General government balance

(% of GDP)

SP Dec 2005

– 3,0

– 6,0

– 4,6

– 3,7

– 2,6

– 1,5

COM Nov 2005

– 3,0

– 6,0

– 5,0

– 4,8

n.a.

n.a.

SP Jun 2005

– 2,9

– 6,2

– 4,8

– 3,9

– 2,8

– 1,6

Primary balance

(% of GDP)

SP Dec 2005

– 0,3

– 3,2

– 1,7

– 0,6

0,6

1,5

COM Nov 2005

– 0,3

– 3,1

– 2,0

– 1,6

n.a.

n.a.

SP Jun 2005

– 0,1

– 3,3

– 1,6

– 0,5

0,7

1,8

Cyclically-adjusted balance

(% of GDP)

SP Dec 2005 (3)

– 2,3

– 5,0

– 3,4

– 2,6

– 1,8

– 1,2

COM Nov 2005

– 2,4

– 5,1

– 3,8

– 3,6

n.a.

n.a.

SP Jun 2005 (3)

– 2,2

– 5,3

– 3,8

– 3,1

– 2,3

– 1,4

Structural balance (4)

(% of GDP)

SP Dec 2005 (5)

n.a.

– 5,0

– 3,4

– 2,6

– 1,8

– 1,2

COM Nov 2005 (6)

– 4,6

– 5,5

– 4,2

– 3,7

n.a.

n.a.

SP Jun 2005 (7)

– 4,5

– 5,5

– 3,8

– 3,1

– 2,3

– 1,4

Government gross debt

(% of GDP)

SP Dec 2005

59,4

65,5

68,7

69,3

68,4

66,2

COM Nov 2005

59,4

65,9

69,8

72,1

n.a.

n.a.

SP Jun 2005

61,9

66,5

67,5

67,8

66,8

64,5

Stability programme (SP); Commission services' autumn 2005 economic forecasts (COM); Commission services' calculations

---

(1)  OJ L 209, 2.8.1997, p. 1. Regulation as amended by Regulation (EC) No 1055/2005 (OJ L 174, 7.7.2005, p. 1). The documents referred to in this text can be found at the following website:

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

(2)  In particular, the programme does not follow the model structure of the new code of conduct, it rather presents four sections: Summary; Economic and budgetary backdrop; Economic and budgetary outlook and Sustainability of public finances. The programme provides all compulsory data and most optional data prescribed by the new code of conduct.

(3)  Commission services calculations on the basis of the information in the programme.

(4)  Cyclically-adjusted balance (as in the previous rows) excluding one-off and other temporary measures.

(5)  There are no one-off and other temporary measures in the programme.

(6)  One-off and other temporary measures taken from the Commission services' autumn 2005 forecast: 2.2% of GDP in 2004, 0.4% of GDP in 2005 and 0.4% of GDP in 2006 and 0.1% of GDP in 2007; all deficit-reducing.

(7)  One-off operations taken from the June 2005 programme: 2.3% of GDP in 2004 and 0.2% of GDP in 2005; all deficit-reducing.

(8)  Based on estimated potential growth of 1.3%, 1.1%, 1.2% and 1.4% respectively in the period 2004-2007.

(9)  Private consumption deflator

Source:

Stability programme (SP); Commission services' autumn 2005 economic forecasts (COM); Commission services' calculations

---

| 5.4.2006 | EN | Official Journal of the European Union | C 82/36 |
| --- | --- | --- | --- |

5.4.2006

EN

Official Journal of the European Union

C 82/36

---

COUNCIL OPINION

of 14 March 2006

on the updated convergence programme of Cyprus, 2005-2009

(2006/C 82/09)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community,

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 14 March 2006, the Council examined the updated convergence programme of Cyprus, which covers the period 2005 to 2009. |
| --- | --- |

(1)

On 14 March 2006, the Council examined the updated convergence programme of Cyprus, which covers the period 2005 to 2009.

| (2) | Supported by robust productivity and employment growth, Cyprus' real GDP growth (3,5 %) was among the highest in the EU over the last decade. Net borrowing vis-à-vis the rest of the world (the external deficit) has expanded (4,8 % of GDP in 2004) due to a number of factors, including robust domestic demand, competitiveness losses related to increased competition in some of Cyprus' main export sectors, the appreciation of the Cyprus pound, as well as higher reinvested earnings. This was largely matched by the borrowing needs of the public sector, which posted a deficit of 4,1 % of GDP in 2004. HICP inflation remained below 3 % for most of the decade. |
| --- | --- |

(2)

Supported by robust productivity and employment growth, Cyprus' real GDP growth (3,5 %) was among the highest in the EU over the last decade. Net borrowing vis-à-vis the rest of the world (the external deficit) has expanded (4,8 % of GDP in 2004) due to a number of factors, including robust domestic demand, competitiveness losses related to increased competition in some of Cyprus' main export sectors, the appreciation of the Cyprus pound, as well as higher reinvested earnings. This was largely matched by the borrowing needs of the public sector, which posted a deficit of 4,1 % of GDP in 2004. HICP inflation remained below 3 % for most of the decade.

| (3) | On 5 July 2004, the Council decided that Cyprus was in excessive deficit. According to the Council recommendation under Article 104(7) of the same date, the excessive deficit had to be corrected by 2005. In its opinion of 8 March 2005 on the previous update of the convergence programme, covering the period 2004-2008, the Council invited Cyprus to implement with vigour the measures envisaged to bring the deficit below 3 % of GDP by 2005, ensure that the debt ratio started to decline by then, and pursue pension and health reforms. |
| --- | --- |

(3)

On 5 July 2004, the Council decided that Cyprus was in excessive deficit. According to the Council recommendation under Article 104(7) of the same date, the excessive deficit had to be corrected by 2005. In its opinion of 8 March 2005 on the previous update of the convergence programme, covering the period 2004-2008, the Council invited Cyprus to implement with vigour the measures envisaged to bring the deficit below 3 % of GDP by 2005, ensure that the debt ratio started to decline by then, and pursue pension and health reforms.

| (4) | The current update estimates the 2005 deficit outcome at 2,5 % of GDP, compared with 2,75 % of GDP in the Commission services' autumn 2005 forecast and just below 3 % in the previous update. The difference with the update mainly reflects a 0,5 % of GDP better than expected interest expenditure. |
| --- | --- |

(4)

The current update estimates the 2005 deficit outcome at 2,5 % of GDP, compared with 2,75 % of GDP in the Commission services' autumn 2005 forecast and just below 3 % in the previous update. The difference with the update mainly reflects a 0,5 % of GDP better than expected interest expenditure.

| (5) | The new programme broadly follows the model structure and data provision requirements for stability and convergence programmes specified in the new code of conduct (2). The update was submitted 2 weeks beyond the 1 December deadline set in the code of conduct reflecting the authorities' wish to incorporate the budgetary measures announced in the second week of December. |
| --- | --- |

(5)

The new programme broadly follows the model structure and data provision requirements for stability and convergence programmes specified in the new code of conduct (2). The update was submitted 2 weeks beyond the 1 December deadline set in the code of conduct reflecting the authorities' wish to incorporate the budgetary measures announced in the second week of December.

| (6) | The macroeconomic scenario underlying the programme envisages real GDP growth just above 4 % over the period 2005-2009. Assessed against currently available information, this scenario appears to be based on plausible growth assumptions until 2007 and slightly favourable ones in 2008 and 2009. As a result, cyclical conditions, as measured by the output gap, might be more favourable than implied by the programme's projections. The programme's projections for inflation appear realistic. |
| --- | --- |

(6)

The macroeconomic scenario underlying the programme envisages real GDP growth just above 4 % over the period 2005-2009. Assessed against currently available information, this scenario appears to be based on plausible growth assumptions until 2007 and slightly favourable ones in 2008 and 2009. As a result, cyclical conditions, as measured by the output gap, might be more favourable than implied by the programme's projections. The programme's projections for inflation appear realistic.

| (7) | Building on the deficit reduction to below 3 % of GDP in 2005, the update aims at further consolidating public finances until 2009, when the deficit would approach 0,5 % of GDP. After reaching 0,75 % of GDP in 2005, the primary surplus is projected to rise gradually to 1,75 % of GDP in 2009. The narrowing of the deficit reflects a cut in the expenditure ratio by around 4 % of GDP that is less than fully compensated by a decline in the revenue ratio (by 2 %). The adjustment is based on structural cuts in current primary expenditure, savings on interest expenditure and a combination of structural and one-off measures on the revenue side. The more gradual adjustment over 2006-2008 compared to the previous programme reflects slightly lower GDP growth. |
| --- | --- |

(7)

Building on the deficit reduction to below 3 % of GDP in 2005, the update aims at further consolidating public finances until 2009, when the deficit would approach 0,5 % of GDP. After reaching 0,75 % of GDP in 2005, the primary surplus is projected to rise gradually to 1,75 % of GDP in 2009. The narrowing of the deficit reflects a cut in the expenditure ratio by around 4 % of GDP that is less than fully compensated by a decline in the revenue ratio (by 2 %). The adjustment is based on structural cuts in current primary expenditure, savings on interest expenditure and a combination of structural and one-off measures on the revenue side. The more gradual adjustment over 2006-2008 compared to the previous programme reflects slightly lower GDP growth.

| (8) | Over the programme period, the structural balance (i.e. the cyclically-adjusted balance net of one-off and other temporary measures) calculated according to the commonly agreed methodology is planned to improve on average by more than 0,5 % of GDP per year, from a deficit of around 3 % of GDP in 2005 to about 0,5 % in 2009. The lack of improvement in the structural balance in 2007 reflects the anticipated deterioration of Cyprus' net position vis-à-vis the EU budget, as temporary compensating grants associated with accession to the EU are terminated in 2006. The programme sets the medium-term objective (MTO) for the budgetary position at a structural deficit of 0,5 % of GDP and aims to achieve this position by 2009. As this MTO is more demanding than the minimum benchmark (estimated at a deficit of close to 2 % of GDP), its achievement should fulfil the aim of providing a safety margin against the occurrence of an excessive deficit. The programme's MTO is at an appropriate level as it lies within the range indicated for euro area and ERM II Member States in the Stability and Growth Pact and the code of conduct and adequately reflects the debt ratio and average potential output growth in the long term. |
| --- | --- |

(8)

Over the programme period, the structural balance (i.e. the cyclically-adjusted balance net of one-off and other temporary measures) calculated according to the commonly agreed methodology is planned to improve on average by more than 0,5 % of GDP per year, from a deficit of around 3 % of GDP in 2005 to about 0,5 % in 2009. The lack of improvement in the structural balance in 2007 reflects the anticipated deterioration of Cyprus' net position vis-à-vis the EU budget, as temporary compensating grants associated with accession to the EU are terminated in 2006. The programme sets the medium-term objective (MTO) for the budgetary position at a structural deficit of 0,5 % of GDP and aims to achieve this position by 2009. As this MTO is more demanding than the minimum benchmark (estimated at a deficit of close to 2 % of GDP), its achievement should fulfil the aim of providing a safety margin against the occurrence of an excessive deficit. The programme's MTO is at an appropriate level as it lies within the range indicated for euro area and ERM II Member States in the Stability and Growth Pact and the code of conduct and adequately reflects the debt ratio and average potential output growth in the long term.

| (9) | The risks to the budgetary projections in the programme appear broadly balanced. Given Cyprus' strong specialisation in tourism, the risks for the macroeconomic scenario are mainly associated with geopolitical developments in the region. Moreover, the macro outlook in 2008 and 2009 is slightly optimistic and tax projections seem somewhat favourable. However, the Cypriot government has so far over-achieved the budgetary targets and the update reiterates its commitment to adopt additional measures if needed to achieve the projected adjustment. |
| --- | --- |

(9)

The risks to the budgetary projections in the programme appear broadly balanced. Given Cyprus' strong specialisation in tourism, the risks for the macroeconomic scenario are mainly associated with geopolitical developments in the region. Moreover, the macro outlook in 2008 and 2009 is slightly optimistic and tax projections seem somewhat favourable. However, the Cypriot government has so far over-achieved the budgetary targets and the update reiterates its commitment to adopt additional measures if needed to achieve the projected adjustment.

| (10) | Based on the estimated outturn for 2005 and taking account of the balance of risks to the budgetary targets, the budgetary stance in the programme seems consistent with a correction of the excessive deficit by 2005 as recommended by the Council. In addition, it seems to provide a sufficient safety margin against breaching the 3 % of GDP deficit threshold with normal macroeconomic fluctuations from 2008. Furthermore, it seems sufficient to ensure that the programme's MTO is almost reached by 2009, as envisaged in the programme. In the years following the correction of the excessive deficit, the pace of adjustment towards the programme's MTO implied by the programme is broadly in line with the Stability and Growth Pact, which specifies that, for euro area and ERM II Member States, the annual improvement in the structural balance should be 0,5 % of GDP as a benchmark and that the adjustment should be higher in good economic times and could be lower in bad times. |
| --- | --- |

(10)

Based on the estimated outturn for 2005 and taking account of the balance of risks to the budgetary targets, the budgetary stance in the programme seems consistent with a correction of the excessive deficit by 2005 as recommended by the Council. In addition, it seems to provide a sufficient safety margin against breaching the 3 % of GDP deficit threshold with normal macroeconomic fluctuations from 2008. Furthermore, it seems sufficient to ensure that the programme's MTO is almost reached by 2009, as envisaged in the programme. In the years following the correction of the excessive deficit, the pace of adjustment towards the programme's MTO implied by the programme is broadly in line with the Stability and Growth Pact, which specifies that, for euro area and ERM II Member States, the annual improvement in the structural balance should be 0,5 % of GDP as a benchmark and that the adjustment should be higher in good economic times and could be lower in bad times.

| (11) | The debt ratio is estimated to have reached 70,5 % of GDP in 2005, above the 60 % of GDP Treaty reference value. The programme projects the debt ratio to decline to 53,5 % in 2009. The risks to the projected evolution of the debt ratio appear to be broadly balanced. In view of this risk assessment, the debt ratio seems to be sufficiently diminishing towards the reference value. |
| --- | --- |

(11)

The debt ratio is estimated to have reached 70,5 % of GDP in 2005, above the 60 % of GDP Treaty reference value. The programme projects the debt ratio to decline to 53,5 % in 2009. The risks to the projected evolution of the debt ratio appear to be broadly balanced. In view of this risk assessment, the debt ratio seems to be sufficiently diminishing towards the reference value.

| (12) | With regard to the sustainability of public finances, Cyprus appears to be at high risk on grounds of the projected budgetary costs of ageing populations. Implementing rigorously the planned consolidation of public finances over the medium term will alleviate the risks to long-term sustainability and, as recognized in the programme, substantial pension and health care reform measures will also be necessary to contain the projected high increase in age-related expenditure in the period up to 2050 and to reduce the risk to long-term sustainability. |
| --- | --- |

(12)

With regard to the sustainability of public finances, Cyprus appears to be at high risk on grounds of the projected budgetary costs of ageing populations. Implementing rigorously the planned consolidation of public finances over the medium term will alleviate the risks to long-term sustainability and, as recognized in the programme, substantial pension and health care reform measures will also be necessary to contain the projected high increase in age-related expenditure in the period up to 2050 and to reduce the risk to long-term sustainability.

| (13) | The envisaged measures in the area of public finances are broadly consistent with the broad economic policy guidelines included in the integrated guidelines for the period 2005-2008. In particular, Cyprus is on track to correct its excessive deficit by the deadline set by the Council and does the necessary to achieve its MTO, while the debt ratio is on a declining path from 2005 onwards. |
| --- | --- |

(13)

The envisaged measures in the area of public finances are broadly consistent with the broad economic policy guidelines included in the integrated guidelines for the period 2005-2008. In particular, Cyprus is on track to correct its excessive deficit by the deadline set by the Council and does the necessary to achieve its MTO, while the debt ratio is on a declining path from 2005 onwards.

| (14) | The National Reform Programme of Cyprus, submitted on 11 November 2005 in the context of the renewed Lisbon strategy for growth and jobs, identifies the following challenges with significant implications for public finances: (i) promoting R&D and innovation and facilitation of ICT diffusion; (ii) upgrading of basic infrastructures; (iii) enhancing human capital development and (iv) social cohesion. The budgetary implications of the actions outlined in the National Reform Programme are reflected in the budgetary projections in the update of the convergence programme. The envisaged measures in the area of public finances are consistent with the priorities foreseen in the National Reform Programme. In particular, the update outlines measures to monitor and better control public spending. |
| --- | --- |

(14)

The National Reform Programme of Cyprus, submitted on 11 November 2005 in the context of the renewed Lisbon strategy for growth and jobs, identifies the following challenges with significant implications for public finances: (i) promoting R&D and innovation and facilitation of ICT diffusion; (ii) upgrading of basic infrastructures; (iii) enhancing human capital development and (iv) social cohesion. The budgetary implications of the actions outlined in the National Reform Programme are reflected in the budgetary projections in the update of the convergence programme. The envisaged measures in the area of public finances are consistent with the priorities foreseen in the National Reform Programme. In particular, the update outlines measures to monitor and better control public spending.

In view of the above assessment, the Council welcomes the structural adjustment planned over the programme period after bringing the deficit below 3 % of GDP in 2005. In the light of the recommendations under Article 104(7), the Council invites Cyprus to:

| (i) | In line with the updated convergence programme, ensure through measures of a permanent nature that budgetary consolidation towards the programme's medium-term objective is sustained after the excessive deficit has been corrected; |
| --- | --- |

(i)

In line with the updated convergence programme, ensure through measures of a permanent nature that budgetary consolidation towards the programme's medium-term objective is sustained after the excessive deficit has been corrected;

| (ii) | Control public pension expenditure and implement further reforms in the areas of pensions and health care in order to improve the long-term sustainability of the public finances. |
| --- | --- |

(ii)

Control public pension expenditure and implement further reforms in the areas of pensions and health care in order to improve the long-term sustainability of the public finances.

Comparison of key macroeconomic and budgetary projections

| | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 |
| --- | --- | --- | --- | --- | --- | --- |
| Real GDP
  (% change) | CP December 2005 | 3,8 | 4,1 | 4,2 | 4,2 | 4,2 | 4,3 |
| COM Nov 2005 | 3,8 | 3,9 | 4,0 | 4,2 | n.a. | n.a. |
| CP December 2004 | 3,6 | 4,0 | 4,4 | 4,5 | 4,5 | n.a. |
| HICP inflation
  (%) | CP December 2005 | 1,9 | 2,1 | 2,0 | 2,0 | 2,0 | 2,0 |
| COM Nov 2005 | 1,9 | 2,3 | 2,1 | 2,1 | n.a. | n.a. |
| CP December 2004 | 2,1 | 2,6 | 2,2 | 2,1 | 2,0 | n.a. |
| Output gap
  (% of potential GDP) | CP December 2005 (3) | – 1,3 | – 0,8 | – 0,3 | 0,1 | 0,0 | 0,1 |
| COM Nov 2005 (7) | – 1,1 | – 0,7 | – 0,2 | 0,4 | n.a. | n.a. |
| CP December 2004 (3) | – 1,5 | – 1,1 | – 0,6 | 0,0 | + 0,5 | n.a. |
| General government balance
  (% of GDP) | CP December 2005 | – 4,1 | – 2,5 | – 1,9 | – 1,8 | – 1,2 | – 0,6 |
| COM Nov 2005 | – 4,1 | – 2,8 | – 2,8 (8) | – 2,4 (8) | n.a. | n.a. |
| CP December 2004 | – 4,8 | – 2,9 | – 1,7 | – 1,5 | – 0,9 | n.a. |
| Primary balance
  (% of GDP) | CP December 2005 | – 0,9 | 0,7 | 1,2 | 1,2 | 1,4 | 1,7 |
| COM Nov 2005 | – 0,9 | 0,5 | 0,3 | 0,7 | n.a. | n.a. |
| CP December 2004 | – 1,3 | 0,7 | 1,8 | 2,0 | 2,5 | n.a. |
| Cyclically-adjusted balance
  (% of GDP) | CP December 2005 (3) | – 3,6 | – 2,2 | – 1,8 | – 1,8 | – 1,2 | – 0,6 |
| COM Nov 2005 | – 3,9 | – 2,5 | – 2,7 | – 2,6 | n.a. | n.a. |
| CP December 2004 | – 4,3 | – 2,7 | – 1,7 | – 1,5 | – 0,9 | n.a. |
| Structural balance (4)

  (% of GDP) | CP December 2005 (5) | – 4,6 | – 3,1 | – 2,1 | – 2,1 | – 1,5 | – 0,6 |
| COM Nov 2005 (6) | – 4,9 | – 3,1 | – 2,7 | – 2,6 | n.a. | n.a. |
| CP December 2004 | n.a. | n.a. | n.a. | n.a. | n.a. | n.a. |
| Government gross debt
  (% of GDP) | CP December 2005 | 71,3 | 70,5 | 67,0 | 64,0 | 56,9 | 53,5 |
| COM Nov 2005 | 72,0 | 70,4 | 69,1 | 67,4 | n.a. | n.a. |
| CP December 2004 | 74,9 | 71,9 | 69,2 | 65,7 | 58,1 | n.a. |
| Convergence programme (CP); Commission services' autumn 2005 economic forecasts (COM); Commission services' calculations |

2004

2005

2006

2007

2008

2009

Real GDP

(% change)

CP December 2005

3,8

4,1

4,2

4,2

4,2

4,3

COM Nov 2005

3,8

3,9

4,0

4,2

n.a.

n.a.

CP December 2004

3,6

4,0

4,4

4,5

4,5

n.a.

HICP inflation

(%)

CP December 2005

1,9

2,1

2,0

2,0

2,0

2,0

COM Nov 2005

1,9

2,3

2,1

2,1

n.a.

n.a.

CP December 2004

2,1

2,6

2,2

2,1

2,0

n.a.

Output gap

(% of potential GDP)

CP December 2005 (3)

– 1,3

– 0,8

– 0,3

0,1

0,0

0,1

COM Nov 2005 (7)

– 1,1

– 0,7

– 0,2

0,4

n.a.

n.a.

CP December 2004 (3)

– 1,5

– 1,1

– 0,6

0,0

- 0,5

n.a.

General government balance

(% of GDP)

CP December 2005

– 4,1

– 2,5

– 1,9

– 1,8

– 1,2

– 0,6

COM Nov 2005

– 4,1

– 2,8

– 2,8 (8)

– 2,4 (8)

n.a.

n.a.

CP December 2004

– 4,8

– 2,9

– 1,7

– 1,5

– 0,9

n.a.

Primary balance

(% of GDP)

CP December 2005

– 0,9

0,7

1,2

1,2

1,4

1,7

COM Nov 2005

– 0,9

0,5

0,3

0,7

n.a.

n.a.

CP December 2004

– 1,3

0,7

1,8

2,0

2,5

n.a.

Cyclically-adjusted balance

(% of GDP)

CP December 2005 (3)

– 3,6

– 2,2

– 1,8

– 1,8

– 1,2

– 0,6

COM Nov 2005

– 3,9

– 2,5

– 2,7

– 2,6

n.a.

n.a.

CP December 2004

– 4,3

– 2,7

– 1,7

– 1,5

– 0,9

n.a.

Structural balance (4)

(% of GDP)

CP December 2005 (5)

– 4,6

– 3,1

– 2,1

– 2,1

– 1,5

– 0,6

COM Nov 2005 (6)

– 4,9

– 3,1

– 2,7

– 2,6

n.a.

n.a.

CP December 2004

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

Government gross debt

(% of GDP)

CP December 2005

71,3

70,5

67,0

64,0

56,9

53,5

COM Nov 2005

72,0

70,4

69,1

67,4

n.a.

n.a.

CP December 2004

74,9

71,9

69,2

65,7

58,1

n.a.

Convergence programme (CP); Commission services' autumn 2005 economic forecasts (COM); Commission services' calculations

---

(1)  OJ L 209, 2.8.1997, p. 1. Regulation as amended by Regulation (EC) No 1055/2005 (OJ L 174, 7.7.2005, p. 1). The documents referred to in this text can be found at the following website:

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

(2)  The programme provides all compulsory and most of the optional data prescribed by the code of conduct. Optional data on labour market developments (in particular, employment (hours worked) and labour productivity (hours worked)) and on the contributions to potential GDP growth are missing.

(3)  Commission services calculations on the basis of the information in the programme

(4)  Cyclically-adjusted balance (as in the previous rows) excluding one-off and other temporary measures

(5)  One-off and other temporary measures taken from the programme (one-off revenues of 1.0% of GDP in 2004, 0.9% of GDP in 2005, and 0.3% of GDP in 2006-2008)

(6)  One-off and other temporary measures taken from the Commission services' autumn 2005 forecast (1.0% of GDP in 2004 and 0.6% of GDP in 2005)

(7)  Based on estimated potential growth of 4.0%, 3.5%, 3.5% and 3.5% respectively in the period 2004-2007.

(8)  The 2006 deficit projection was made under a no-policy change scenario, since the 2006 draft budget was not available at the cut-off date of the Commission services autumn 2005 forecast, which also partially explains a higher deficit projection for 2007.

Source:

Convergence programme (CP); Commission services' autumn 2005 economic forecasts (COM); Commission services' calculations

---

| 5.4.2006 | EN | Official Journal of the European Union | C 82/40 |
| --- | --- | --- | --- |

5.4.2006

EN

Official Journal of the European Union

C 82/40

---

COUNCIL OPINION

of 14 March 2006

on the updated convergence programme of Lithuania, 2005-2008

(2006/C 82/10)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community,

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 14 March 2006 the Council examined the updated convergence programme of Lithuania, which covers the period 2005 to 2008. |
| --- | --- |

(1)

On 14 March 2006 the Council examined the updated convergence programme of Lithuania, which covers the period 2005 to 2008.

| (2) | During the last decade, Lithuania successfully completed the transition to a functioning market economy and currently enjoys one of the highest growth rates in the EU. Structural reforms allowed to increase employment significantly since 2001. Real GDP growth averaged almost 8 % in the period 2001-2004. GDP per capita in purchasing power standards was about 48 % of the EU-25 average in 2004. There have not been significant macroeconomic imbalances, although it remains important to continue speedy reduction of the structural unemployment and manage risk of demand pressures related to lagged and ongoing effects of a rapid expansion of bank credit. A significant deterioration of the general government deficit occurred as a consequence of the external shock induced by the Russian crisis in 1998. Afterwards, a budgetary consolidation plan was implemented. Since 2001 the deficit has remained at 2 % of GDP or below and the cyclically adjusted deficit was brought to 1 % of GDP in 2002. |
| --- | --- |

(2)

During the last decade, Lithuania successfully completed the transition to a functioning market economy and currently enjoys one of the highest growth rates in the EU. Structural reforms allowed to increase employment significantly since 2001. Real GDP growth averaged almost 8 % in the period 2001-2004. GDP per capita in purchasing power standards was about 48 % of the EU-25 average in 2004. There have not been significant macroeconomic imbalances, although it remains important to continue speedy reduction of the structural unemployment and manage risk of demand pressures related to lagged and ongoing effects of a rapid expansion of bank credit. A significant deterioration of the general government deficit occurred as a consequence of the external shock induced by the Russian crisis in 1998. Afterwards, a budgetary consolidation plan was implemented. Since 2001 the deficit has remained at 2 % of GDP or below and the cyclically adjusted deficit was brought to 1 % of GDP in 2002.

| (3) | In its opinion of 8 March 2005 on the previous update of the convergence programme; covering the period 2004-2007, the Council invited Lithuania to make further progress towards a close to balance budgetary position, particularly in order to manage domestic demand pressures, to implement strictly the budget for 2005 in order to reduce the risk of breaching the 3 % reference value and to use better-than-projected or additional revenues and unused expenditure items for deficit reduction. |
| --- | --- |

(3)

In its opinion of 8 March 2005 on the previous update of the convergence programme; covering the period 2004-2007, the Council invited Lithuania to make further progress towards a close to balance budgetary position, particularly in order to manage domestic demand pressures, to implement strictly the budget for 2005 in order to reduce the risk of breaching the 3 % reference value and to use better-than-projected or additional revenues and unused expenditure items for deficit reduction.

| (4) | As regards budgetary implementation in 2005, the general government deficit for 2005 was estimated at 2 % of GDP in the Commission services' autumn 2005 forecast, against a target of 2,1 % of GDP set in the previous update of the convergence programme (2). The updated programme presents a deficit estimated at 1,5 % of GDP. However, preliminary data for the whole of 2005 point to an even better deficit outcome, at around 1 % of GDP. The better-than-targeted outcome stems from a good budgetary performance of all levels of general government, which are estimated to have recorded higher-than-planned revenues while expenditure plans were broadly achieved. |
| --- | --- |

(4)

As regards budgetary implementation in 2005, the general government deficit for 2005 was estimated at 2 % of GDP in the Commission services' autumn 2005 forecast, against a target of 2,1 % of GDP set in the previous update of the convergence programme (2). The updated programme presents a deficit estimated at 1,5 % of GDP. However, preliminary data for the whole of 2005 point to an even better deficit outcome, at around 1 % of GDP. The better-than-targeted outcome stems from a good budgetary performance of all levels of general government, which are estimated to have recorded higher-than-planned revenues while expenditure plans were broadly achieved.

| (5) | The programme broadly follows the model structure and data provision requirements for stability and convergence programmes specified in the new code of conduct. (3) |
| --- | --- |

(5)

The programme broadly follows the model structure and data provision requirements for stability and convergence programmes specified in the new code of conduct. (3)

| (6) | The macroeconomic scenario presented in the programme expects real GDP growth to reach 7 % in 2005 and to decelerate progressively to 5,3 % in 2007, bouncing back to 6,8 % in 2008. Assessed against currently available information, this scenario appears to be based on plausible growth assumptions (and cautious assumptions for 2007). The programme's projections for inflation could be on the low side if demand pressures increase. |
| --- | --- |

(6)

The macroeconomic scenario presented in the programme expects real GDP growth to reach 7 % in 2005 and to decelerate progressively to 5,3 % in 2007, bouncing back to 6,8 % in 2008. Assessed against currently available information, this scenario appears to be based on plausible growth assumptions (and cautious assumptions for 2007). The programme's projections for inflation could be on the low side if demand pressures increase.

| (7) | The main goal of the programme is to reduce the general government deficit in structural terms (i.e. in cyclically-adjusted terms and net of one-off and other temporary measures) to or below 1 % of GDP, which is the country's medium-term objective (MTO) for the budgetary position as meant in the Stability and Growth Pact, by the end of the programme period. The update foresees the general government deficit to gradually decrease from 1,5 % of GDP in 2005 to 1,0 % in 2008. The time profile of the primary deficit is similar, with a decline from 0,6 % of GDP in 2005 to 0,2 % at the end of the programme period. Overall, the programme relies on a favourable economic outlook that would create good conditions for fiscal retrenchment. The consolidation foreseen in the programme is expenditure-driven, mostly due to a cut in collective consumption and social transfers as a percentage of GDP. A significant increase in government investment is planned, from 4,1 % of GDP in 2005 to 5,2 % in 2008, remaining well above the EU average (2,5 % of GDP). Against a broadly unchanged macroeconomic scenario, taking into account the reclassification of savings and real estate restitutions, the budgetary adjustment is slower compared to the previous update. The slower adjustment is a result of personal income tax reduction. |
| --- | --- |

(7)

The main goal of the programme is to reduce the general government deficit in structural terms (i.e. in cyclically-adjusted terms and net of one-off and other temporary measures) to or below 1 % of GDP, which is the country's medium-term objective (MTO) for the budgetary position as meant in the Stability and Growth Pact, by the end of the programme period. The update foresees the general government deficit to gradually decrease from 1,5 % of GDP in 2005 to 1,0 % in 2008. The time profile of the primary deficit is similar, with a decline from 0,6 % of GDP in 2005 to 0,2 % at the end of the programme period. Overall, the programme relies on a favourable economic outlook that would create good conditions for fiscal retrenchment. The consolidation foreseen in the programme is expenditure-driven, mostly due to a cut in collective consumption and social transfers as a percentage of GDP. A significant increase in government investment is planned, from 4,1 % of GDP in 2005 to 5,2 % in 2008, remaining well above the EU average (2,5 % of GDP). Against a broadly unchanged macroeconomic scenario, taking into account the reclassification of savings and real estate restitutions, the budgetary adjustment is slower compared to the previous update. The slower adjustment is a result of personal income tax reduction.

| (8) | Based on Commission services' calculations according to the commonly agreed methodology, the structural deficit (i.e. the cyclically-adjusted deficit net of one-off and other temporary measures) would improve from about 2,25 % of GDP in 2005 to 1,25 % in 2008. The programme sets the medium-term objective (MTO) for the budgetary position at a structural deficit of 1 % of GDP and aims at achieving this position by 2008. As the programme's MTO is more demanding than the minimum benchmark (estimated at a deficit of 1,75 % of GDP), its achievement should fulfil the aim of providing a safety margin against the occurrence of an excessive deficit. The programme's MTO is at an appropriate level because it lies within the range indicated for euro area and ERM II Member States and adequately reflects the debt ratio and average potential output growth in the long term. |
| --- | --- |

(8)

Based on Commission services' calculations according to the commonly agreed methodology, the structural deficit (i.e. the cyclically-adjusted deficit net of one-off and other temporary measures) would improve from about 2,25 % of GDP in 2005 to 1,25 % in 2008. The programme sets the medium-term objective (MTO) for the budgetary position at a structural deficit of 1 % of GDP and aims at achieving this position by 2008. As the programme's MTO is more demanding than the minimum benchmark (estimated at a deficit of 1,75 % of GDP), its achievement should fulfil the aim of providing a safety margin against the occurrence of an excessive deficit. The programme's MTO is at an appropriate level because it lies within the range indicated for euro area and ERM II Member States and adequately reflects the debt ratio and average potential output growth in the long term.

| (9) | The risks to the budgetary projections in the programme appear broadly balanced. On the one hand, the general government deficit outcome in 2005 is very likely to be lower than estimated in the programme. A likely carry-over to 2006 and the authorities' track record of cautious revenue planning in the last few years indicate that outcomes could be better than targeted in 2006. On the other hand, the programme largely relies on a decrease in expenditure (as a percentage of GDP), particularly through public payroll moderation in the context of lower personal income tax rates. Nonetheless, the moderation could prove difficult to obtain and there are some uncertainties about the impact of the pension reform and tax reforms towards the end of the programme period. |
| --- | --- |

(9)

The risks to the budgetary projections in the programme appear broadly balanced. On the one hand, the general government deficit outcome in 2005 is very likely to be lower than estimated in the programme. A likely carry-over to 2006 and the authorities' track record of cautious revenue planning in the last few years indicate that outcomes could be better than targeted in 2006. On the other hand, the programme largely relies on a decrease in expenditure (as a percentage of GDP), particularly through public payroll moderation in the context of lower personal income tax rates. Nonetheless, the moderation could prove difficult to obtain and there are some uncertainties about the impact of the pension reform and tax reforms towards the end of the programme period.

| (10) | In view of this risk assessment, the budgetary stance in the programme may not be sufficient to ensure that the programme's MTO is achieved by 2008, as envisaged in the update. However, the budgetary stance in the programme seems to provide a sufficient safety margin against breaching the 3 % of GDP deficit threshold with normal macroeconomic fluctuations from 2007. The pace of the adjustment towards the programme's MTO implied by the programme is not fully in line with the Stability and Growth Pact, which specifies that, for euro area and ERM II Member States, the annual improvement in the structural balance should be 0,5 % of GDP as a benchmark and that the adjustment should be higher in good economic times and could be lower in bad economic times. In particular, the planned structural adjustment towards the MTO is on average 0,4 % of GDP in the period 2006-2008, against the background of favourable cyclical conditions (indicated by a large positive output gap that gradually closes over the programme period) according to the agreed methodology. However, the data availability and structural breaks in Lithuania imply that estimates of output gaps and structural balances are subject to a margin of uncertainty. |
| --- | --- |

(10)

In view of this risk assessment, the budgetary stance in the programme may not be sufficient to ensure that the programme's MTO is achieved by 2008, as envisaged in the update. However, the budgetary stance in the programme seems to provide a sufficient safety margin against breaching the 3 % of GDP deficit threshold with normal macroeconomic fluctuations from 2007. The pace of the adjustment towards the programme's MTO implied by the programme is not fully in line with the Stability and Growth Pact, which specifies that, for euro area and ERM II Member States, the annual improvement in the structural balance should be 0,5 % of GDP as a benchmark and that the adjustment should be higher in good economic times and could be lower in bad economic times. In particular, the planned structural adjustment towards the MTO is on average 0,4 % of GDP in the period 2006-2008, against the background of favourable cyclical conditions (indicated by a large positive output gap that gradually closes over the programme period) according to the agreed methodology. However, the data availability and structural breaks in Lithuania imply that estimates of output gaps and structural balances are subject to a margin of uncertainty.

| (11) | According to the Stability and Growth Pact, ‘major structural reforms’ with a verifiable impact on the long-term sustainability of the public finances should be taken into account when defining the adjustment path to the programme's MTO. The medium-term budgetary strategy outlined in the programme embodies a temporary deviation from the adjustment path towards the programme's MTO. While the programme lists several reforms to support the deviation, only the pension reform, consisting in the introduction of a funded pillar, is sufficiently detailed in the programme and can be considered as having a beneficial impact on the long-term sustainability of the public finances. The average annual structural adjustment towards the MTO over the period 2006-2008 is 0,5 percent of GDP if the net budgetary cost of the ongoing pension reform, which increases from 0,5 % of GDP in 2005 to 0,8 % in 2008, is taken into account. However, a safety margin against breaching the 3 % of GDP deficit threshold would not be provided in 2006, when the structural deficit (calculated by Commission services) exceeds the minimum benchmark by 0,25 percentage point of GDP. Thus, the temporary deviation would be admissible in the meaning of the revised Stability and Growth Pact and the new code of conduct, conditional on meeting the minimum benchmark in 2006, which is possible if a better-than-planned deficit outcome in 2005 is carried over to 2006 and subsequent years. |
| --- | --- |

(11)

According to the Stability and Growth Pact, ‘major structural reforms’ with a verifiable impact on the long-term sustainability of the public finances should be taken into account when defining the adjustment path to the programme's MTO. The medium-term budgetary strategy outlined in the programme embodies a temporary deviation from the adjustment path towards the programme's MTO. While the programme lists several reforms to support the deviation, only the pension reform, consisting in the introduction of a funded pillar, is sufficiently detailed in the programme and can be considered as having a beneficial impact on the long-term sustainability of the public finances. The average annual structural adjustment towards the MTO over the period 2006-2008 is 0,5 percent of GDP if the net budgetary cost of the ongoing pension reform, which increases from 0,5 % of GDP in 2005 to 0,8 % in 2008, is taken into account. However, a safety margin against breaching the 3 % of GDP deficit threshold would not be provided in 2006, when the structural deficit (calculated by Commission services) exceeds the minimum benchmark by 0,25 percentage point of GDP. Thus, the temporary deviation would be admissible in the meaning of the revised Stability and Growth Pact and the new code of conduct, conditional on meeting the minimum benchmark in 2006, which is possible if a better-than-planned deficit outcome in 2005 is carried over to 2006 and subsequent years.

| (12) | The debt ratio is estimated to have reached about 19 % of GDP in 2005, well below the 60 % of GDP Treaty reference value. The programme projects the debt ratio to remain at about 19-20 % of GDP throughout the remainder of the programme horizon. |
| --- | --- |

(12)

The debt ratio is estimated to have reached about 19 % of GDP in 2005, well below the 60 % of GDP Treaty reference value. The programme projects the debt ratio to remain at about 19-20 % of GDP throughout the remainder of the programme horizon.

| (13) | With regard to the sustainability of public finances, Lithuania appears to be at low risk on grounds of the projected budgetary costs of ageing populations. The level of gross debt is currently very low and is projected to remain below the 60 % of GDP reference value throughout most the projection period and a contained government deficit is planned over the programme period. Lithuania has enacted a pension reform which contributes significantly to contain the budgetary impact of ageing populations. Further changes to the pension system are envisaged by the Lithuanian authorities, aiming at increasing the replacement rates for pensioners and at the same time gradually raising the retirement age. The implementation of the latter measure would be key in ensuring the financial sustainability of the public pension system. |
| --- | --- |

(13)

With regard to the sustainability of public finances, Lithuania appears to be at low risk on grounds of the projected budgetary costs of ageing populations. The level of gross debt is currently very low and is projected to remain below the 60 % of GDP reference value throughout most the projection period and a contained government deficit is planned over the programme period. Lithuania has enacted a pension reform which contributes significantly to contain the budgetary impact of ageing populations. Further changes to the pension system are envisaged by the Lithuanian authorities, aiming at increasing the replacement rates for pensioners and at the same time gradually raising the retirement age. The implementation of the latter measure would be key in ensuring the financial sustainability of the public pension system.

| (14) | The envisaged measures in the area of public finances are broadly consistent with the broad economic policy guidelines included in the integrated guidelines for the period 2005-2008. In particular, taking into account the temporary deviation linked to pension reform, Lithuania is making progress towards its MTO. Also, the government is taking several measures to improve the quality of public finances (e.g. tax reform) and has also progressed with the pension reform in order to improve the sustainability of public finances in the long-term. |
| --- | --- |

(14)

The envisaged measures in the area of public finances are broadly consistent with the broad economic policy guidelines included in the integrated guidelines for the period 2005-2008. In particular, taking into account the temporary deviation linked to pension reform, Lithuania is making progress towards its MTO. Also, the government is taking several measures to improve the quality of public finances (e.g. tax reform) and has also progressed with the pension reform in order to improve the sustainability of public finances in the long-term.

| (15) | The measures presented in the NRP in the area of public finances are consistent with those presented in the programme, and mostly relate to next steps to be taken with the pension, health care and tax reforms. Measures aiming at improving budgetary procedures (e.g. to complete programme-based budget at the different levels of the general government and a flexible use of funds for co-financing of EU projects) are also in line with those described in the update. The budgetary implications of the limited number of concrete reform measures specified in the NRP are reflected in the budgetary projections of the convergence programme. |
| --- | --- |

(15)

The measures presented in the NRP in the area of public finances are consistent with those presented in the programme, and mostly relate to next steps to be taken with the pension, health care and tax reforms. Measures aiming at improving budgetary procedures (e.g. to complete programme-based budget at the different levels of the general government and a flexible use of funds for co-financing of EU projects) are also in line with those described in the update. The budgetary implications of the limited number of concrete reform measures specified in the NRP are reflected in the budgetary projections of the convergence programme.

In view of the above assessment, and in the context of strong growth prospects and to ensure sustainable convergence with the EU, the Council invites Lithuania to:

| (i) | strengthen the effort in the structural budgetary adjustment in order to speed up the attainment of the MTO, and |
| --- | --- |

(i)

strengthen the effort in the structural budgetary adjustment in order to speed up the attainment of the MTO, and

| (ii) | in particular, aim for a more demanding general government deficit target in 2006, making sure that a better-than-projected deficit outcome in 2005 is carried over to 2006 and subsequent years. |
| --- | --- |

(ii)

in particular, aim for a more demanding general government deficit target in 2006, making sure that a better-than-projected deficit outcome in 2005 is carried over to 2006 and subsequent years.

Comparison of key macroeconomic and budgetary projections

| | 2004 | 2005 | 2006 | 2007 | 2008 |
| --- | --- | --- | --- | --- | --- |
| Real GDP
  (% change) | CP Dec. 2005 | 7,0 | 7,0 | 6,0 | 5,3 | 6,8 |
| COM Nov 2005 | 7,0 | 7,0 | 6,2 | 5,8 | n.a. |
| CP Jan 2005 | 6,5 | 6,5 | 6,2 | 6,0 | n.a. |
| HICP inflation
  (%) | CP Dec. 2005 | 1,1 | 2,7 | 2,7 | 2,7 | 2,5 |
| COM Nov 2005 | 1,1 | 2,6 | 2,8 | 2,9 | n.a. |
| CP Jan. 2005 | 1,2 | 2,9 | 2,5 | 2,9 | n.a. |
| Output gap
  (% of potential GDP) | CP Dec. 2005 (6) | 2,5 | 2,9 | 2,1 | 0,5 | 0,6 |
| COM Nov 2005 (9) | 2,1 | 2,2 | 1,4 | 0,2 | n.a. |
| CP Jan. 2005 (6) | 1,6 | 1,3 | 0,5 | – 0,1 | n.a. |
| General government balance (4)

  (% of GDP) | CP Dec. 2005 | – 1,4 | – 1,5 | – 1,4 | – 1,3 | – 1,0 |
| COM Nov 2005 | – 1,4 | – 2,0 | – 1,8 | – 1,6 | n.a. |
| CP Jan.2005 (10) | – 2,5 | – 2,5 | – 1,8 | – 1,5 | n.a. |
| Primary balance
  (% of GDP) | CP Dec 2005 | – 0,4 | – 0,6 | – 0,6 | – 0,6 | – 0,2 |
| COM Nov 2005 | – 0,4 | – 1,1 | – 1,0 | – 0,8 | n.a. |
| CP Jan 2005 (10) | – 1,5 | – 1,4 | – 0,8 | – 0,5 | n.a. |
| Cyclically-adjusted balance
  (% of GDP) | CP Dec. 2005 (6) | – 2,1 | – 2,3 | – 2,0 | – 1,4 | – 1,2 |
| COM Nov 2005 | – 2,0 | – 2,6 | – 2,2 | – 1,7 | n.a. |
| CP Jan 2005 (6) | n.a | n.a | n.a | n.a | n.a. |
| Structural balance (5)

  (% of GDP) | CP Dec. 2005 (7) | – 2,1 | – 2,3 | – 2,0 | – 1,4 | – 1,2 |
| COM Nov 2005 (8) | – 2,0 | – 2,6 | – 2,2 | – 1,7 | n.a. |
| CP Jan 2005 | n.a. | n.a. | n.a. | n.a. | n.a. |
| Government gross debt
  (% of GDP) | CP Dec 2005 | 19,5 | 19,2 | 19,9 | 19,8 | 18,9 |
| COM Nov 2005 | 19,6 | 20,7 | 20,2 | 19,6 | n.a. |
| CP Jan 2005 | 20,1 | 20,9 | 20,3 | 20,1 | n.a. |
| Convergence programme (CP); Commission services' autumn 2005 economic forecasts (COM); Commission services' calculations |

2004

2005

2006

2007

2008

Real GDP

(% change)

CP Dec. 2005

7,0

7,0

6,0

5,3

6,8

COM Nov 2005

7,0

7,0

6,2

5,8

n.a.

CP Jan 2005

6,5

6,5

6,2

6,0

n.a.

HICP inflation

(%)

CP Dec. 2005

1,1

2,7

2,7

2,7

2,5

COM Nov 2005

1,1

2,6

2,8

2,9

n.a.

CP Jan. 2005

1,2

2,9

2,5

2,9

n.a.

Output gap

(% of potential GDP)

CP Dec. 2005 (6)

2,5

2,9

2,1

0,5

0,6

COM Nov 2005 (9)

2,1

2,2

1,4

0,2

n.a.

CP Jan. 2005 (6)

1,6

1,3

0,5

– 0,1

n.a.

General government balance (4)

(% of GDP)

CP Dec. 2005

– 1,4

– 1,5

– 1,4

– 1,3

– 1,0

COM Nov 2005

– 1,4

– 2,0

– 1,8

– 1,6

n.a.

CP Jan.2005 (10)

– 2,5

– 2,5

– 1,8

– 1,5

n.a.

Primary balance

(% of GDP)

CP Dec 2005

– 0,4

– 0,6

– 0,6

– 0,6

– 0,2

COM Nov 2005

– 0,4

– 1,1

– 1,0

– 0,8

n.a.

CP Jan 2005 (10)

– 1,5

– 1,4

– 0,8

– 0,5

n.a.

Cyclically-adjusted balance

(% of GDP)

CP Dec. 2005 (6)

– 2,1

– 2,3

– 2,0

– 1,4

– 1,2

COM Nov 2005

– 2,0

– 2,6

– 2,2

– 1,7

n.a.

CP Jan 2005 (6)

n.a

n.a

n.a

n.a

n.a.

Structural balance (5)

(% of GDP)

CP Dec. 2005 (7)

– 2,1

– 2,3

– 2,0

– 1,4

– 1,2

COM Nov 2005 (8)

– 2,0

– 2,6

– 2,2

– 1,7

n.a.

CP Jan 2005

n.a.

n.a.

n.a.

n.a.

n.a.

Government gross debt

(% of GDP)

CP Dec 2005

19,5

19,2

19,9

19,8

18,9

COM Nov 2005

19,6

20,7

20,2

19,6

n.a.

CP Jan 2005

20,1

20,9

20,3

20,1

n.a.

Convergence programme (CP); Commission services' autumn 2005 economic forecasts (COM); Commission services' calculations

---

(1)  OJ L 209, 2.8.1997, p. 1. Regulation as amended by Regulation (EC) No 1055/2005 (OJ L 174, 7.7.2005, p. 1). The documents referred to in this text can be found at the following website:

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

(2)  Following a decision by Eurostat in May 2005 on the classification of payments related to the compensation for lost rouble savings in the early years of transition and the restitution of real estate property confiscated in Soviet times, the deficit target set in the previous update (2,5 % of GDP) has been adjusted to exclude payments related to these liabilities to allow for a meaningful comparison.

(3)  The programme provides all compulsory and most optional data prescribed by the new code of conduct, although the presentation of compulsory data is in a few cases slightly different from that in the new code of conduct, for instance domestic demand is shown instead of final domestic demand, interest expenditure corresponding to FISIM is missing and the tax burden shows what should be total taxes, i.e. the sum of direct, indirect and capital taxes, therefore indirect taxes paid to the EU budget and social contributions are missing in the calculation of the tax burden.

(4)  The costs of the ongoing pension reform (introduction of a second pillar) are included in the deficit. The costs are estimated at 0.3% in 2004, 0.5% of GDP in 2005, 0.7% in 2006, 0.8% in 2007 and 0.8% in 2008.

(5)  Cyclically-adjusted balance (as in the previous rows) excluding one-off and other temporary measures. The adjustment taking out the pension reform costs according to the updated programme would be 0.5% of GDP in 2006, 0.7% in 2007 and 0.2% in 2008, or 0.5% on average in the period 2006-2008.

(6)  Commission services calculations on the basis of the information in the programme.

(7)  There are no one-off and other temporary measures in the programme.

(8)  There are no one-off and other temporary measures in the Commission services' forecast.

(9)  Based on estimated potential growth of 7.0%, 6.9%, 7.0% and 7.0% respectively in the period 2004-2007.

(10)  It included payments related to savings compensations and real estate restitutions amounting to 0.4% of GDP in 2005, 0.8% in 2006 and 1.2% in 2007.

Source:

Convergence programme (CP); Commission services' autumn 2005 economic forecasts (COM); Commission services' calculations

---

| 5.4.2006 | EN | Official Journal of the European Union | C 82/44 |
| --- | --- | --- | --- |

5.4.2006

EN

Official Journal of the European Union

C 82/44

---

COUNCIL OPINION

of 14 March 2006

on the updated convergence programme of Malta, 2005-2008

(2006/C 82/11)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community,

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 14 March 2006, the Council examined the updated convergence programme of Malta, which covers the period 2005 to 2008. |
| --- | --- |

(1)

On 14 March 2006, the Council examined the updated convergence programme of Malta, which covers the period 2005 to 2008.

| (2) | Malta's real GDP growth averaged 2,75 % per year between 1995 and 2005. However, since 2001 economic growth stalled in the wake of unfavourable external conditions and domestic structural weaknesses. The combination of these two factors resulted in a loss in competitiveness, while export performance worsened adding further pressure on the external deficit. In recent years, the general government deficit has averaged around 6 % of GDP, peaking at 10,3 % of GDP in 2003, and declined to 5,1 % of GDP in 2004. |
| --- | --- |

(2)

Malta's real GDP growth averaged 2,75 % per year between 1995 and 2005. However, since 2001 economic growth stalled in the wake of unfavourable external conditions and domestic structural weaknesses. The combination of these two factors resulted in a loss in competitiveness, while export performance worsened adding further pressure on the external deficit. In recent years, the general government deficit has averaged around 6 % of GDP, peaking at 10,3 % of GDP in 2003, and declined to 5,1 % of GDP in 2004.

| (3) | On 5 July 2004, the Council decided that Malta was in excessive deficit. According to the Council recommendation under Article 104(7) of the same date, the excessive deficit had to be corrected by 2006. The Council opinion of 17 February 2005 on the previous update of the convergence programme, covering the period 2004-2007, invited Malta to do the necessary to ensure the correction of the excessive deficit in 2006, ensure that the debt ratio is declining towards the 60 % of GDP Treaty reference value at a satisfactory pace and make further progress in the design and implementation of the pension and health care reforms. |
| --- | --- |

(3)

On 5 July 2004, the Council decided that Malta was in excessive deficit. According to the Council recommendation under Article 104(7) of the same date, the excessive deficit had to be corrected by 2006. The Council opinion of 17 February 2005 on the previous update of the convergence programme, covering the period 2004-2007, invited Malta to do the necessary to ensure the correction of the excessive deficit in 2006, ensure that the debt ratio is declining towards the 60 % of GDP Treaty reference value at a satisfactory pace and make further progress in the design and implementation of the pension and health care reforms.

| (4) | The update estimates the 2005 deficit close to 4 % of GDP, against 4,25 % of GDP in the Commission services' autumn 2005 forecast and a target of 3,75 % of GDP set in the previous update of the convergence programme. The difference between the update and the Commission services' autumn 2005 forecast is explained by the inclusion of recent data showing lower general government expenditure than previously projected. |
| --- | --- |

(4)

The update estimates the 2005 deficit close to 4 % of GDP, against 4,25 % of GDP in the Commission services' autumn 2005 forecast and a target of 3,75 % of GDP set in the previous update of the convergence programme. The difference between the update and the Commission services' autumn 2005 forecast is explained by the inclusion of recent data showing lower general government expenditure than previously projected.

| (5) | The update was submitted 5 weeks beyond the 1 December deadline set in the code of conduct. The programme broadly follows the model structure and data provision requirements for stability and convergence programmes specified in the new code of conduct (2). |
| --- | --- |

(5)

The update was submitted 5 weeks beyond the 1 December deadline set in the code of conduct. The programme broadly follows the model structure and data provision requirements for stability and convergence programmes specified in the new code of conduct (2).

| (6) | The macroeconomic scenario underlying the programme envisages that real GDP growth will pick up from 0,9 % in 2005 to an average of 1,4 % over the rest of the programme period reflecting an improved external demand. Assessed against currently available information, this scenario appears to be based on plausible growth assumptions, except in 2006. In particular, the update projects a relatively quick economic recovery driven by a strong contribution of external demand to growth, mainly attributed to a recovery in the electronics industry, as well as sustained investment activity. The possibility that the long-anticipated pickup in this industry will not materialise in 2006 poses a downside risk to GDP growth. |
| --- | --- |

(6)

The macroeconomic scenario underlying the programme envisages that real GDP growth will pick up from 0,9 % in 2005 to an average of 1,4 % over the rest of the programme period reflecting an improved external demand. Assessed against currently available information, this scenario appears to be based on plausible growth assumptions, except in 2006. In particular, the update projects a relatively quick economic recovery driven by a strong contribution of external demand to growth, mainly attributed to a recovery in the electronics industry, as well as sustained investment activity. The possibility that the long-anticipated pickup in this industry will not materialise in 2006 poses a downside risk to GDP growth.

| (7) | The budgetary strategy outlined in the update aims at reducing the deficit to below the 3 % of GDP reference value in 2006 and at pursuing fiscal consolidation to reach a deficit of 1,25 % in 2008. The deficit targets in the update include one-off revenues of 0,75 % to 1 % of GDP per year until 2007. The time profile of the primary surplus is similar, with an improvement from 0,25 % in 2005 to 2

  % at the end of the period. Consolidation is mainly expenditure-based, with expenditures falling by 7,5 % of GDP until the end of the programme period, of which investment accounts for almost half. Compared with the previous programme, the adjustment in the update is less ambitious against a broadly less favourable macroeconomic scenario. |
| --- | --- |

(7)

Formula

| (8) | Over the programme period, the structural balance (i.e. the cyclically-adjusted balance net of one-off and other temporary measures) calculated by the Commission services according to the commonly agreed methodology is planned to improve on average by 1 % of GDP per year. The programme clearly identifies its medium-term objective (MTO) as a balanced budgetary position, which it aims to achieve by the end of the programme period. As the programme's MTO is more demanding than the minimum benchmark (estimated at a deficit of around 1,75 % of GDP), its achievement should fulfil the aim of providing a safety margin against the occurrence of an excessive deficit. The programme's MTO is at an appropriate level because it lies within the range indicated for euro area and ERM II Member States in the Stability and Growth Pact and the code of conduct and adequately reflects the debt ratio and average potential output growth in the long term. |
| --- | --- |

(8)

Over the programme period, the structural balance (i.e. the cyclically-adjusted balance net of one-off and other temporary measures) calculated by the Commission services according to the commonly agreed methodology is planned to improve on average by 1 % of GDP per year. The programme clearly identifies its medium-term objective (MTO) as a balanced budgetary position, which it aims to achieve by the end of the programme period. As the programme's MTO is more demanding than the minimum benchmark (estimated at a deficit of around 1,75 % of GDP), its achievement should fulfil the aim of providing a safety margin against the occurrence of an excessive deficit. The programme's MTO is at an appropriate level because it lies within the range indicated for euro area and ERM II Member States in the Stability and Growth Pact and the code of conduct and adequately reflects the debt ratio and average potential output growth in the long term.

| (9) | The budgetary outcome could be worse than projected in the programme, especially on account of the favourable macroeconomic scenario projected for 2006. Although the update foresees higher indirect taxes in 2006 than in the Commission services' autumn 2005 forecast, projections for total revenues in that year are comparable. While the information given in the programme on the policy measures for 2006 do not seem to fully justify these developments, the measures underpinning the consolidation process are not disclosed for 2007 and 2008, making an overall assessment difficult to carry out. |
| --- | --- |

(9)

The budgetary outcome could be worse than projected in the programme, especially on account of the favourable macroeconomic scenario projected for 2006. Although the update foresees higher indirect taxes in 2006 than in the Commission services' autumn 2005 forecast, projections for total revenues in that year are comparable. While the information given in the programme on the policy measures for 2006 do not seem to fully justify these developments, the measures underpinning the consolidation process are not disclosed for 2007 and 2008, making an overall assessment difficult to carry out.

| (10) | Assuming that the 2006 budget is fully implemented and the macroeconomic risks are duly addressed, the budgetary stance in the programme seems consistent with a correction of the excessive deficit by the deadline indicated by the Council. The programme seems to provide a sufficient safety margin against breaching the 3 % of GDP deficit threshold with normal macroeconomic fluctuations after the planned correction of the excessive deficit. The budgetary strategy outlined in the programme seems sufficient to ensure that the programme's MTO is broadly achieved in 2008. In the years following the correction of the excessive deficit, the annual structural adjustment towards the programme's MTO implied by the programme is well above 0,5 % of GDP, and hence consistent with the Stability and Growth Pact. |
| --- | --- |

(10)

Assuming that the 2006 budget is fully implemented and the macroeconomic risks are duly addressed, the budgetary stance in the programme seems consistent with a correction of the excessive deficit by the deadline indicated by the Council. The programme seems to provide a sufficient safety margin against breaching the 3 % of GDP deficit threshold with normal macroeconomic fluctuations after the planned correction of the excessive deficit. The budgetary strategy outlined in the programme seems sufficient to ensure that the programme's MTO is broadly achieved in 2008. In the years following the correction of the excessive deficit, the annual structural adjustment towards the programme's MTO implied by the programme is well above 0,5 % of GDP, and hence consistent with the Stability and Growth Pact.

| (11) | The gross government debt is estimated to have reached 76,75 % of GDP in 2005, above the 60 % of GDP Treaty reference value. Starting in 2006, the debt ratio is expected to gradually fall, reaching 67,25 % of GDP by the end of the programme period. The evolution of the debt ratio might be less favourable than projected in the programme in view of the risks associated to some implementation risk surrounding privatisation given its critical role in reducing the debt ratio in 2006. Unexplained below-the-line operations partially offset privatisation receipts in 2006. Taking into account the balance of risks, the debt ratio seems to be sufficiently diminishing towards the reference value. |
| --- | --- |

(11)

The gross government debt is estimated to have reached 76,75 % of GDP in 2005, above the 60 % of GDP Treaty reference value. Starting in 2006, the debt ratio is expected to gradually fall, reaching 67,25 % of GDP by the end of the programme period. The evolution of the debt ratio might be less favourable than projected in the programme in view of the risks associated to some implementation risk surrounding privatisation given its critical role in reducing the debt ratio in 2006. Unexplained below-the-line operations partially offset privatisation receipts in 2006. Taking into account the balance of risks, the debt ratio seems to be sufficiently diminishing towards the reference value.

| (12) | With regard to the sustainability of public finances, Malta appears to be at medium risk on grounds of the projected budgetary costs of ageing populations. The level of gross debt is currently above the 60 % reference value and the currently high structural deficit, if unchanged, will prevent the necessary reduction of the gross debt ratio from falling below the Treaty reference value over the long term. Implementing rigorously the planned budgetary consolidation over the programme period would therefore contribute to reducing debt below the reference value, with positive consequences for risks to public finance sustainability. Changes to the pension system are envisaged by the Maltese authorities, aiming at ensuring adequacy and sustainability of the pension system. The implementation of the reform would be key in ensuring the financial sustainability of the public pension system (3). |
| --- | --- |

(12)

With regard to the sustainability of public finances, Malta appears to be at medium risk on grounds of the projected budgetary costs of ageing populations. The level of gross debt is currently above the 60 % reference value and the currently high structural deficit, if unchanged, will prevent the necessary reduction of the gross debt ratio from falling below the Treaty reference value over the long term. Implementing rigorously the planned budgetary consolidation over the programme period would therefore contribute to reducing debt below the reference value, with positive consequences for risks to public finance sustainability. Changes to the pension system are envisaged by the Maltese authorities, aiming at ensuring adequacy and sustainability of the pension system. The implementation of the reform would be key in ensuring the financial sustainability of the public pension system (3).

| (13) | The envisaged measures in the area of public finances are broadly consistent with the broad economic policy guidelines included in the integrated guidelines for the period 2005-2008. Although the update foresees the correction of the excessive deficit and the reduction of the debt ratio at a satisfactory pace in line with the Council's recommendations and anticipates the achievement of the medium-term budgetary objective within the programme period, it does not announce implementation measures to address the problem of the long-term sustainability. |
| --- | --- |

(13)

The envisaged measures in the area of public finances are broadly consistent with the broad economic policy guidelines included in the integrated guidelines for the period 2005-2008. Although the update foresees the correction of the excessive deficit and the reduction of the debt ratio at a satisfactory pace in line with the Council's recommendations and anticipates the achievement of the medium-term budgetary objective within the programme period, it does not announce implementation measures to address the problem of the long-term sustainability.

| (14) | The National Reform Programme of Malta, submitted on 21 October 2005 in the context of the renewed Lisbon strategy for growth and jobs, identifies the following challenges with significant implications for public finances: sustainability of public finances; competitiveness; the environment; employment; and education and training. Although not explicitly stated, the update takes into account the budgetary implications of the NRP. The measures in the area of public finances envisaged in the convergence programme are broadly in line with the actions foreseen in the National Reform Programme. In particular, the updated convergence programme confirms the intention to pursue reforms to enhance the efficiency of the public sector, improve tax compliance, pursue privatisation and provide support for the training of the labour force. |
| --- | --- |

(14)

The National Reform Programme of Malta, submitted on 21 October 2005 in the context of the renewed Lisbon strategy for growth and jobs, identifies the following challenges with significant implications for public finances: sustainability of public finances; competitiveness; the environment; employment; and education and training. Although not explicitly stated, the update takes into account the budgetary implications of the NRP. The measures in the area of public finances envisaged in the convergence programme are broadly in line with the actions foreseen in the National Reform Programme. In particular, the updated convergence programme confirms the intention to pursue reforms to enhance the efficiency of the public sector, improve tax compliance, pursue privatisation and provide support for the training of the labour force.

In view of the above assessment, the Council notes that, overall, the programme is consistent with the correction of the excessive deficit by 2006. In the light of the recommendations under Article 104(7), the Council invites Malta to:

| (i) | implement with rigour the 2006 budget measures and ensure the correction of the excessive deficit this year and in line with the updated convergence programme, and ensure that budgetary consolidation towards the programme's medium-term objective is sustained after the excessive deficit has been corrected; |
| --- | --- |

(i)

implement with rigour the 2006 budget measures and ensure the correction of the excessive deficit this year and in line with the updated convergence programme, and ensure that budgetary consolidation towards the programme's medium-term objective is sustained after the excessive deficit has been corrected;

| (ii) | ensure that the debt ratio is declining towards the 60 % of GDP Treaty reference value at a satisfactory pace from 2006 onwards; |
| --- | --- |

(ii)

ensure that the debt ratio is declining towards the 60 % of GDP Treaty reference value at a satisfactory pace from 2006 onwards;

| (iii) | improve the long-term sustainability of the public finances by making further progress in the design and implementation of the pension reform. |
| --- | --- |

(iii)

improve the long-term sustainability of the public finances by making further progress in the design and implementation of the pension reform.

Comparison of key macroeconomic and budgetary projections

| | 2004 | 2005 | 2006 | 2007 | 2008 |
| --- | --- | --- | --- | --- | --- |
| Real GDP
  (% change) | CP Jan 2006 | 0,2 | 0,9 | 1,1 | 1,2 | 2,0 |
| COM Nov 2005 | 0,4 | 0,8 | 0,7 | 1,1 | n.a. |
| CP Dec 2004 | 0,6 | 1,5 | 1,8 | 2,2 | n.a. |
| HICP inflation
  (%) | CP Jan 2006 (4) | 2,8 | 2,8 | 3,1 | 2,5 | 1,9 |
| COM Nov 2005 | 2,7 | 3,1 | 2,6 | 2,2 | n.a. |
| CP Dec 2004 (4) | 2,9 | 2,4 | 1,9 | 1,9 | n.a. |
| Output gap
  (% of potential GDP) | CP Jan 2006 (5) | – 1,8 | – 2,9 | – 3,7 | – 4,2 | – 4,4 |
| COM Nov 2005 (9) | – 2,0 | – 3,1 | – 4,3 | – 5,1 | n.a. |
| CP Dec 2004 (5) | – 2,1 | – 2,4 | – 2,3 | – 1,6 | n.a. |
| General government balance
  (% of GDP) | CP Jan 2006 | – 5,1 | – 3,9 | – 2,7 | – 2,3 | – 1,2 |
| COM Nov 2005 | – 5,1 | – 4,2 | – 3,0 | – 2,5 | n.a. |
| CP Dec 2004 | – 5,2 | – 3,7 | – 2,3 | – 1,4 | n.a. |
| Primary balance
  (% of GDP) | CP Jan 2006 | – 1,0 | 0,3 | 1,4 | 1,5 | 2,4 |
| COM Nov 2005 | – 1,0 | 0,2 | 1,3 | 1,9 | n.a. |
| CP Dec 2004 | – 1,4 | 0,3 | 1,6 | 2,4 | n.a. |
| Cyclically-adjusted balance (6)

  (% of GDP) | CP Jan 2006 (5) | – 4,4 | – 2,8 | – 1,3 | – 0,7 | 0,4 |
| COM Nov 2005 | – 4,3 | – 3,0 | – 1,4 | – 0,5 | n.a. |
| CP Dec 2004 (5) | n.a. | n.a. | n.a. | n.a. | n.a. |
| Structural balance (5)

  (% of GDP) | CP Jan 2006 (7) | – 5,1 | – 3,8 | – 2,3 | – 1,4 | 0,3 |
| COM Nov 2005 (8) | – 5,0 | – 4,0 | – 2,4 | – 1,2 | n.a. |
| CP Dec 2004 | n.a. | n.a. | n.a. | n.a. | n.a. |
| Government gross debt
  (% of GDP) | CP Jan 2006 | 76,7 | 76,7 | 70,8 | 68,9 | 67,3 |
| COM Nov 2005 | 75,9 | 77,2 | 77,4 | 77,1 | n.a. |
| CP Dec 2004 | 73,2 | 72,0 | 70,5 | 70,4 | n.a. |
| Convergence programme (CP); Commission services' autumn 2005 economic forecasts (COM); Commission services' calculations. |

2004

2005

2006

2007

2008

Real GDP

(% change)

CP Jan 2006

0,2

0,9

1,1

1,2

2,0

COM Nov 2005

0,4

0,8

0,7

1,1

n.a.

CP Dec 2004

0,6

1,5

1,8

2,2

n.a.

HICP inflation

(%)

CP Jan 2006 (4)

2,8

2,8

3,1

2,5

1,9

COM Nov 2005

2,7

3,1

2,6

2,2

n.a.

CP Dec 2004 (4)

2,9

2,4

1,9

1,9

n.a.

Output gap

(% of potential GDP)

CP Jan 2006 (5)

– 1,8

– 2,9

– 3,7

– 4,2

– 4,4

COM Nov 2005 (9)

– 2,0

– 3,1

– 4,3

– 5,1

n.a.

CP Dec 2004 (5)

– 2,1

– 2,4

– 2,3

– 1,6

n.a.

General government balance

(% of GDP)

CP Jan 2006

– 5,1

– 3,9

– 2,7

– 2,3

– 1,2

COM Nov 2005

– 5,1

– 4,2

– 3,0

– 2,5

n.a.

CP Dec 2004

– 5,2

– 3,7

– 2,3

– 1,4

n.a.

Primary balance

(% of GDP)

CP Jan 2006

– 1,0

0,3

1,4

1,5

2,4

COM Nov 2005

– 1,0

0,2

1,3

1,9

n.a.

CP Dec 2004

– 1,4

0,3

1,6

2,4

n.a.

Cyclically-adjusted balance (6)

(% of GDP)

CP Jan 2006 (5)

– 4,4

– 2,8

– 1,3

– 0,7

0,4

COM Nov 2005

– 4,3

– 3,0

– 1,4

– 0,5

n.a.

CP Dec 2004 (5)

n.a.

n.a.

n.a.

n.a.

n.a.

Structural balance (5)

(% of GDP)

CP Jan 2006 (7)

– 5,1

– 3,8

– 2,3

– 1,4

0,3

COM Nov 2005 (8)

– 5,0

– 4,0

– 2,4

– 1,2

n.a.

CP Dec 2004

n.a.

n.a.

n.a.

n.a.

n.a.

Government gross debt

(% of GDP)

CP Jan 2006

76,7

76,7

70,8

68,9

67,3

COM Nov 2005

75,9

77,2

77,4

77,1

n.a.

CP Dec 2004

73,2

72,0

70,5

70,4

n.a.

Convergence programme (CP); Commission services' autumn 2005 economic forecasts (COM); Commission services' calculations.

---

(1)  OJ L 209, 2.8.1997, p. 1. Regulation as amended by Regulation (EC) No 1055/2005 (OJ L 174, 7.7.2005, p. 1). The documents referred to in this text can be found at the following website:

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

(2)  The programme has gaps in the compulsory and optional data prescribed by the new code of conduct. Specifically, price data are not consistent with the harmonised definition, and employment and unemployment figures are not based on labour force survey data but refer to registered persons, while forecasts for all the items included in the sectoral balances and FISIM data are not provided. Missing optional data mainly concern: employment and productivity in hours, forecasts of sectoral balances and breakdown of social transfers.

(3)  Details on long-term sustainability are provided in the technical assessment of the programme by the Commission services

(http://europa.eu.int/comm/economy_finance/about/activities/sgp/main_en.htm).

(4)  CP figures correspond to the Retail Price Index.

(5)  Commission services' calculations on the basis of the information in the programme.

(6)  Cyclically-adjusted balance (as in the previous rows) excluding one-off and other temporary measures.

(7)  One-off and other temporary measures taken from the programme: 0.7% in 2004, 1.0% of GDP in 2005, 1.0% in 2006, 0.7% in 2007 and 0.1 in 2008; all deficit-reducing.

(8)  The Commission services' forecast include the same one-offs as the programme.

(9)  Based on estimated potential growth of 1.3%, 2.0%, 2.0% and 2.0% respectively in the period 2004-2007.

Source:

Convergence programme (CP); Commission services' autumn 2005 economic forecasts (COM); Commission services' calculations.

---

| 5.4.2006 | EN | Official Journal of the European Union | C 82/48 |
| --- | --- | --- | --- |

5.4.2006

EN

Official Journal of the European Union

C 82/48

---

COUNCIL OPINION

of 14 March 2006

on the updated convergence programme of Poland, 2005-2008

(2006/C 82/12)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community,

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 14 March 2006 the Council examined the updated convergence programme of Poland, which covers the period 2005 to 2008. |
| --- | --- |

(1)

On 14 March 2006 the Council examined the updated convergence programme of Poland, which covers the period 2005 to 2008.

| (2) | Polish real GDP growth averaged 4,5 % per year between 1994 and 2004 more than two percentage points above the EU25 average of 2,4 %. After a period of strong economic expansion, real GDP growth slowed to 1,0 % in 2001, reflecting both domestic and external cyclical factors. It has since rebounded reaching 5,3 % in 2004. Per capita income in purchasing power standards reached 46,5 % of the EU25 average in 2004. HICP inflation has remained high, at 7,0 % on average, over the last ten years, but dropped significantly in 2005, to around 2 %. The labour market situation remains Poland's major problem, with unemployment rate of 18,8 % in 2004 and the lowest rate of employment in the EU (51,7 % in 2004). For the last ten years, the general government balance has always been negative in Poland. It fluctuated between -1,4 % and -4,8 % (2) of GDP until 2003, since when it started to improve, reaching -3,8 % of GDP in 2004 and –2,9 % of GDP in 2005. |
| --- | --- |

(2)

Polish real GDP growth averaged 4,5 % per year between 1994 and 2004 more than two percentage points above the EU25 average of 2,4 %. After a period of strong economic expansion, real GDP growth slowed to 1,0 % in 2001, reflecting both domestic and external cyclical factors. It has since rebounded reaching 5,3 % in 2004. Per capita income in purchasing power standards reached 46,5 % of the EU25 average in 2004. HICP inflation has remained high, at 7,0 % on average, over the last ten years, but dropped significantly in 2005, to around 2 %. The labour market situation remains Poland's major problem, with unemployment rate of 18,8 % in 2004 and the lowest rate of employment in the EU (51,7 % in 2004). For the last ten years, the general government balance has always been negative in Poland. It fluctuated between -1,4 % and -4,8 % (2) of GDP until 2003, since when it started to improve, reaching -3,8 % of GDP in 2004 and –2,9 % of GDP in 2005.

| (3) | On 5 July 2004 the Council decided that Poland was in excessive deficit. According to the Council recommendation under Article 104(7) of the same date, the excessive deficit has to be corrected by 2007. In its opinion of 17 February 2005 on the previous update of the convergence programme, covering the period 2004-2007, which has been taken before modification of Stability and Growth Pact the Council invited Poland to ‘(i) strengthen the fiscal adjustment beyond 2005 and lower the deficit target for 2007; (ii) to ensure a full implementation of the structural measures contained in the Hausner plan and make further efforts to introduce alternative measures if implementation risks were to materialize’. |
| --- | --- |

(3)

On 5 July 2004 the Council decided that Poland was in excessive deficit. According to the Council recommendation under Article 104(7) of the same date, the excessive deficit has to be corrected by 2007. In its opinion of 17 February 2005 on the previous update of the convergence programme, covering the period 2004-2007, which has been taken before modification of Stability and Growth Pact the Council invited Poland to ‘(i) strengthen the fiscal adjustment beyond 2005 and lower the deficit target for 2007; (ii) to ensure a full implementation of the structural measures contained in the Hausner plan and make further efforts to introduce alternative measures if implementation risks were to materialize’.

| (4) | As regards budgetary implementation in 2005, the general government deficit for 2005 is estimated at 3,6 % of GDP in the Commission services' autumn 2005 forecast, against a deficit target of 3,9 % of GDP set in the previous update of the convergence programme and in comparison with the deficit of 2,9 % of GDP projected in the current programme. The comparison with previous convergence programmes is complicated by significant data revisions linked to methodological changes. The better-than-expected outcome was mainly determined by the budgetary performance of the central government, in particular the state budget, which recorded (on a cash basis) higher-than-planned direct tax revenues and an under-execution of expenditures, reducing the deficit by about 0,7 percentage points compared to the budget plan for 2005. |
| --- | --- |

(4)

As regards budgetary implementation in 2005, the general government deficit for 2005 is estimated at 3,6 % of GDP in the Commission services' autumn 2005 forecast, against a deficit target of 3,9 % of GDP set in the previous update of the convergence programme and in comparison with the deficit of 2,9 % of GDP projected in the current programme. The comparison with previous convergence programmes is complicated by significant data revisions linked to methodological changes. The better-than-expected outcome was mainly determined by the budgetary performance of the central government, in particular the state budget, which recorded (on a cash basis) higher-than-planned direct tax revenues and an under-execution of expenditures, reducing the deficit by about 0,7 percentage points compared to the budget plan for 2005.

| (5) | The programme broadly follows the model structure and data provision requirements for stability and convergence programmes specified in the new code of conduct (3). Poland submitted its convergence programme update on 19 January, 7 weeks beyond the 1 December deadline set in the code of conduct. The delay was caused by the formation of a new government in November 2005 following parliamentary elections and the replacement of the minister of finance in early January 2006. |
| --- | --- |

(5)

The programme broadly follows the model structure and data provision requirements for stability and convergence programmes specified in the new code of conduct (3). Poland submitted its convergence programme update on 19 January, 7 weeks beyond the 1 December deadline set in the code of conduct. The delay was caused by the formation of a new government in November 2005 following parliamentary elections and the replacement of the minister of finance in early January 2006.

| (6) | The programme's macroeconomic scenario expects annual real GDP growth to increase from 3,3 % in 2005 to 4,3 % in 2006 and to reach 5,0 % in 2008. The growth assumptions underlying the programme can be considered as plausible, tilted to favourable in the outer year. The programme's projections for inflation also appear realistic, except for 2006 when they seem to be on the upper side taking into account the latest CPI developments. |
| --- | --- |

(6)

The programme's macroeconomic scenario expects annual real GDP growth to increase from 3,3 % in 2005 to 4,3 % in 2006 and to reach 5,0 % in 2008. The growth assumptions underlying the programme can be considered as plausible, tilted to favourable in the outer year. The programme's projections for inflation also appear realistic, except for 2006 when they seem to be on the upper side taking into account the latest CPI developments.

| (7) | The current update of the convergence programme aims at a gradual reduction of the general government deficit (calculated taking into account the Eurostat decision of 2 March 2004) to meet the convergence criteria by the end of the legislature, hence implicitly by the end of 2009. The deficit target for 2007 is unchanged at 2,2 % of GDP, with the second-pillar funded pension schemes included in the general government sector. If the pension schemes are excluded from the government sector, the deficit target increases compared to the previous update, from 3,9 % of GDP to 4,1 % of GDP because the estimated balance of the pension scheme now reaches 1,9 % of GDP. If the regressive reduction of net cost of pension reforms were allowed to be taken into account, Poland's general government deficit would be below 3 % of GDP throughout the period. The primary balance (second-pillar funded pension schemes in the general government sector) is expected to improve from –0,3 % of GDP in 2005 to 0,6 % in 2008. This slow adjustment is driven primarily by favourable revenue developments in 2006 and some expenditure cuts in 2007 and 2008. Compared with the previous update, the current update sets more ambitious deficit targets in 2006, thanks to carry-over effect from favourable revenue developments in 2005, but afterwards the adjustment effort is lower and expenditure reforms are postponed until 2007 and 2008. |
| --- | --- |

(7)

The current update of the convergence programme aims at a gradual reduction of the general government deficit (calculated taking into account the Eurostat decision of 2 March 2004) to meet the convergence criteria by the end of the legislature, hence implicitly by the end of 2009. The deficit target for 2007 is unchanged at 2,2 % of GDP, with the second-pillar funded pension schemes included in the general government sector. If the pension schemes are excluded from the government sector, the deficit target increases compared to the previous update, from 3,9 % of GDP to 4,1 % of GDP because the estimated balance of the pension scheme now reaches 1,9 % of GDP. If the regressive reduction of net cost of pension reforms were allowed to be taken into account, Poland's general government deficit would be below 3 % of GDP throughout the period. The primary balance (second-pillar funded pension schemes in the general government sector) is expected to improve from –0,3 % of GDP in 2005 to 0,6 % in 2008. This slow adjustment is driven primarily by favourable revenue developments in 2006 and some expenditure cuts in 2007 and 2008. Compared with the previous update, the current update sets more ambitious deficit targets in 2006, thanks to carry-over effect from favourable revenue developments in 2005, but afterwards the adjustment effort is lower and expenditure reforms are postponed until 2007 and 2008.

| (8) | Over the programme period, the structural balance (i.e. the cyclically-adjusted balance net of one-off and other temporary measures) calculated by the Commission services on the basis of the information provided in the programme according to the commonly agreed methodology is planned to improve on average by 0,25 % of GDP per year. The programme sets the medium-term objective (MTO) for the budgetary position at a structural deficit of -1,0 % of GDP, which it does not aim to achieve within the programme period. As the programme's MTO is more demanding than the minimum benchmark (estimated at a deficit of around -1,5 % of GDP), its achievement should fulfil the aim of providing a safety margin against the occurrence of an excessive deficit. The programme's MTO reflects the debt ratio and average potential output growth in the long term. |
| --- | --- |

(8)

Over the programme period, the structural balance (i.e. the cyclically-adjusted balance net of one-off and other temporary measures) calculated by the Commission services on the basis of the information provided in the programme according to the commonly agreed methodology is planned to improve on average by 0,25 % of GDP per year. The programme sets the medium-term objective (MTO) for the budgetary position at a structural deficit of -1,0 % of GDP, which it does not aim to achieve within the programme period. As the programme's MTO is more demanding than the minimum benchmark (estimated at a deficit of around -1,5 % of GDP), its achievement should fulfil the aim of providing a safety margin against the occurrence of an excessive deficit. The programme's MTO reflects the debt ratio and average potential output growth in the long term.

| (9) | The budgetary outcome could be worse than projected in the programme. Although the record of overachievement of the budgetary targets set in the previous programmes make the budgetary projections look cautious, several factors may weigh on the planned adjustment. Following the good tax revenue developments in 2004 and 2005, assumptions about the tax elasticity are rather optimistic, in particular in 2006Furthermore, the growth assumptions in the outer year of the programme period (2008) seem favourable. In the current political climate, miners have been granted special pension rights, inducing other social groups to also make demands for special schemes, undermining the pension reform implemented in 1999. The four-year nominal anchor of PLN 30bn for the state budget, introduced in the convergence programme, is aimed at tackling the problem of the excessive deficit. Nevertheless, some alternative or additional fiscal rule aiming at controlling increase in government expenditure would be beneficial. |
| --- | --- |

(9)

The budgetary outcome could be worse than projected in the programme. Although the record of overachievement of the budgetary targets set in the previous programmes make the budgetary projections look cautious, several factors may weigh on the planned adjustment. Following the good tax revenue developments in 2004 and 2005, assumptions about the tax elasticity are rather optimistic, in particular in 2006Furthermore, the growth assumptions in the outer year of the programme period (2008) seem favourable. In the current political climate, miners have been granted special pension rights, inducing other social groups to also make demands for special schemes, undermining the pension reform implemented in 1999. The four-year nominal anchor of PLN 30bn for the state budget, introduced in the convergence programme, is aimed at tackling the problem of the excessive deficit. Nevertheless, some alternative or additional fiscal rule aiming at controlling increase in government expenditure would be beneficial.

| (10) | The programme does not follow the deficit reduction path for 2007 specified by the Council in its recommendation under Article 104(7) and the fiscal stance in the update seems inconsistent with a correction of the excessive deficit by the deadline set by the Council. The conclusion is reinforced taking into account the balance of risks. The deficit targets for 2005 and 2006 are lower than in the previous update and meet the nominal targets set in the Council recommendation of 5 July 2004, thanks to better than planned execution of the 2005 budget with carry-over effects to 2006. A comparison of targets should take into account the changes in national accounts methodology required by Eurostat. For the critical year 2007, the programme foresees a deficit reduction to 2,2 % of GDP. However, when excluding the second-pillar funded pension schemes from the general government sector in line with Eurostat decision of 2 March 2004, the planned deficit in 2007 is at 4,1 % of GDP If the regressive reduction of net cost of pension reforms were allowed to be taken into account, Poland's general government deficit would be below 3 % of GDP. Substantial additional adjustment effort would be needed to correct the excessive deficit by the set deadline. |
| --- | --- |

(10)

The programme does not follow the deficit reduction path for 2007 specified by the Council in its recommendation under Article 104(7) and the fiscal stance in the update seems inconsistent with a correction of the excessive deficit by the deadline set by the Council. The conclusion is reinforced taking into account the balance of risks. The deficit targets for 2005 and 2006 are lower than in the previous update and meet the nominal targets set in the Council recommendation of 5 July 2004, thanks to better than planned execution of the 2005 budget with carry-over effects to 2006. A comparison of targets should take into account the changes in national accounts methodology required by Eurostat. For the critical year 2007, the programme foresees a deficit reduction to 2,2 % of GDP. However, when excluding the second-pillar funded pension schemes from the general government sector in line with Eurostat decision of 2 March 2004, the planned deficit in 2007 is at 4,1 % of GDP If the regressive reduction of net cost of pension reforms were allowed to be taken into account, Poland's general government deficit would be below 3 % of GDP. Substantial additional adjustment effort would be needed to correct the excessive deficit by the set deadline.

| (11) | Between 2005 and 2008, government debt is expected to increase by 3,25 percentage point of GDP and reach 45,5 % of GDP in 2008, well below the 60 % of GDP reference value. It is also about 2 percentage points lower than in the previous Convergence programme update. Significant debt-increasing stock-flow adjustments are expected to offset the effect of primary surpluses and a favourable snowball effect (i.e. the negative contribution of the implicit interest is outweighed by sustained high nominal GDP growth). |
| --- | --- |

(11)

Between 2005 and 2008, government debt is expected to increase by 3,25 percentage point of GDP and reach 45,5 % of GDP in 2008, well below the 60 % of GDP reference value. It is also about 2 percentage points lower than in the previous Convergence programme update. Significant debt-increasing stock-flow adjustments are expected to offset the effect of primary surpluses and a favourable snowball effect (i.e. the negative contribution of the implicit interest is outweighed by sustained high nominal GDP growth).

| (12) | The envisaged measures in the area of public finances are broadly consistent with the broad economic policy guidelines included in the integrated guidelines for the period 2005-2008. However, the measures proposed are not sufficient to correct promptly the excessive deficit. |
| --- | --- |

(12)

The envisaged measures in the area of public finances are broadly consistent with the broad economic policy guidelines included in the integrated guidelines for the period 2005-2008. However, the measures proposed are not sufficient to correct promptly the excessive deficit.

| (13) | The National Reform Programme of Poland, submitted on 5 January 2006 in the context of the renewed Lisbon strategy for growth and jobs, identifies the following challenges with significant implications for public finances: budgetary consolidation in view of high deficits, upgrading the underdeveloped infrastructure and reducing charges imposed on labour to decrease the high unemployment in Poland. However, the budgetary implications of the actions outlined in the National Reform Programme are not presented in the budgetary projections of the convergence programme. Among the public finance measures introduced in the National Reform Programme, convergence programme mentions the deficit anchor and the multi-annual budgetary planning. |
| --- | --- |

(13)

The National Reform Programme of Poland, submitted on 5 January 2006 in the context of the renewed Lisbon strategy for growth and jobs, identifies the following challenges with significant implications for public finances: budgetary consolidation in view of high deficits, upgrading the underdeveloped infrastructure and reducing charges imposed on labour to decrease the high unemployment in Poland. However, the budgetary implications of the actions outlined in the National Reform Programme are not presented in the budgetary projections of the convergence programme. Among the public finance measures introduced in the National Reform Programme, convergence programme mentions the deficit anchor and the multi-annual budgetary planning.

| (14) | With regard to the sustainability of public finances, Poland appears to be at low risk on grounds of the projected budgetary costs of ageing populations. The level of debt is currently under the 60 % reference value and should remain so under the assumption that savings related to the implementation of the 1999 pension reform will materialise. The reform is ambitious and contributes to the solving of the ageing problem, but measures recently adopted by the government to exclude particular employment groups from the reformed pension scheme could weaken the reform's long-term outcome, particularly if further exemptions from the pension schemes were granted. The realization of contingent liabilities as well as the currently high structural deficit may increase the debt/GDP ratio faster than planned over the medium term. Implementing rigorously the planned consolidation of public finances over the medium-term would reduce risks to long-term sustainability (4). |
| --- | --- |

(14)

With regard to the sustainability of public finances, Poland appears to be at low risk on grounds of the projected budgetary costs of ageing populations. The level of debt is currently under the 60 % reference value and should remain so under the assumption that savings related to the implementation of the 1999 pension reform will materialise. The reform is ambitious and contributes to the solving of the ageing problem, but measures recently adopted by the government to exclude particular employment groups from the reformed pension scheme could weaken the reform's long-term outcome, particularly if further exemptions from the pension schemes were granted. The realization of contingent liabilities as well as the currently high structural deficit may increase the debt/GDP ratio faster than planned over the medium term. Implementing rigorously the planned consolidation of public finances over the medium-term would reduce risks to long-term sustainability (4).

In view of the above assessment, the Council notes that the convergence programme envisages some progress, but not the effective correction of the excessive deficit in 2007, as required by the Council recommendation of 5 July 2004, and that the Commission intends to recommend further steps under the excessive deficit procedure as required by the Stability and Growth Pact. In the meantime, Poland should:

| (i) | strengthen the adjustment in 2006 in particular, by allocating any higher-than-budgeted revenues or lower-than-budgeted expenditure to deficit reduction; |
| --- | --- |

(i)

strengthen the adjustment in 2006 in particular, by allocating any higher-than-budgeted revenues or lower-than-budgeted expenditure to deficit reduction;

| (ii) | safeguard the results of the pension reform; |
| --- | --- |

(ii)

safeguard the results of the pension reform;

| (iii) | enhance the institutional framework of public finances by complementing the nominal anchor with other measures, for example a medium-term expenditure rule. |
| --- | --- |

(iii)

enhance the institutional framework of public finances by complementing the nominal anchor with other measures, for example a medium-term expenditure rule.

Comparison of key macroeconomic and budgetary projections (5)

| | 2004 | 2005 | 2006 | 2007 | 2008 |
| --- | --- | --- | --- | --- | --- |
| Real GDP
  (% change) | CP Jan 2006 | 5,3 | 3,3 | 4,3 | 4,6 | 5,0 |
| COM Nov 2005 | 5,3 | 3,4 | 4,3 | 4,5 | n.a. |
| CP Dec 2004 | 5,7 | 5,0 | 4,8 | 5,6 | n.a. |
| HICP inflation
  (%) | CP Jan 2006 | 3,6 | 2,2 | 1,5 | 2,2 | 2,5 |
| COM Nov 2005 | 3,6 | 2,2 | 2,3 | 2,5 | n.a. |
| CP Dec 2004 | 3,5 | 3 | 2,7 | 2,5 | n.a. |
| Output gap
  (% of potential GDP) | CP Jan 2006 (6) | 0,4 | 0,1 | 0,3 | 0,3 | 0,6 |
| COM Nov 2005 (9) | 0,4 | 0,2 | 0,4 | 0,6 | n.a. |
| CP Dec 2004 (6) | n.a. | n.a. | n.a. | n.a. | n.a. |
| General government balance
  (% of GDP) | CP Jan 2006 | – 3,8 | – 2,9 | – 2,6 | – 2,2 | – 1,9 |
| COM Nov 2005 | – 3,9 | – 3,6 | – 3,6 | – 3,4 | n.a. |
| CP Dec 2004 | – 5,4 | – 3,9 | – 3,2 | – 2,2 | n.a. |
| Primary balance
  (% of GDP) | CP Jan 2006 | – 1,2 | – 0,3 | – 0,2 | 0,3 | 0,6 |
| COM Nov 2005 | – 1,2 | – 1,0 | – 1,1 | – 1,0 | n.a. |
| CP Dec 2004 | – 2,6 | – 1,3 | – 0,5 | 0,4 | n.a. |
| Cyclically-adjusted and Structural balance (7)

  (% of GDP) | CP Jan 2006 | – 4,1 | – 2,9 | – 2,7 | – 2,3 | – 2,1 |
| COM Nov 2005 (8) | – 4,1 | – 3,7 | – 3,7 | – 3,6 | n.a. |
| CP Dec 2004 | n.a. | n.a. | n.a. | n.a. | n.a. |
| Government gross debt
  (% of GDP) | CP Jan 2006 | 41,9 | 42,5 | 45,0 | 45,3 | 45,4 |
| COM Nov 2005 | 43,6 | 46,3 | 47,0 | 47,3 | n.a. |
| CP Dec 2004 | 45,9 | 47,6 | 48,0 | 47,3 | n.a. |
| Convergence programme (CP); Commission services' autumn 2005 economic forecasts (COM); Commission services' calculations |

2004

2005

2006

2007

2008

Real GDP

(% change)

CP Jan 2006

5,3

3,3

4,3

4,6

5,0

COM Nov 2005

5,3

3,4

4,3

4,5

n.a.

CP Dec 2004

5,7

5,0

4,8

5,6

n.a.

HICP inflation

(%)

CP Jan 2006

3,6

2,2

1,5

2,2

2,5

COM Nov 2005

3,6

2,2

2,3

2,5

n.a.

CP Dec 2004

3,5

3

2,7

2,5

n.a.

Output gap

(% of potential GDP)

CP Jan 2006 (6)

0,4

0,1

0,3

0,3

0,6

COM Nov 2005 (9)

0,4

0,2

0,4

0,6

n.a.

CP Dec 2004 (6)

n.a.

n.a.

n.a.

n.a.

n.a.

General government balance

(% of GDP)

CP Jan 2006

– 3,8

– 2,9

– 2,6

– 2,2

– 1,9

COM Nov 2005

– 3,9

– 3,6

– 3,6

– 3,4

n.a.

CP Dec 2004

– 5,4

– 3,9

– 3,2

– 2,2

n.a.

Primary balance

(% of GDP)

CP Jan 2006

– 1,2

– 0,3

– 0,2

0,3

0,6

COM Nov 2005

– 1,2

– 1,0

– 1,1

– 1,0

n.a.

CP Dec 2004

– 2,6

– 1,3

– 0,5

0,4

n.a.

Cyclically-adjusted and Structural balance (7)

(% of GDP)

CP Jan 2006

– 4,1

– 2,9

– 2,7

– 2,3

– 2,1

COM Nov 2005 (8)

– 4,1

– 3,7

– 3,7

– 3,6

n.a.

CP Dec 2004

n.a.

n.a.

n.a.

n.a.

n.a.

Government gross debt

(% of GDP)

CP Jan 2006

41,9

42,5

45,0

45,3

45,4

COM Nov 2005

43,6

46,3

47,0

47,3

n.a.

CP Dec 2004

45,9

47,6

48,0

47,3

n.a.

Convergence programme (CP); Commission services' autumn 2005 economic forecasts (COM); Commission services' calculations

---

(1)  OJ L 209, 2.8.1997, p. 1. Regulation as amended by Regulation (EC) No 1055/2005 (OJ L 174, 7.7.2005, p. 1). The documents referred to in this text can be found at the following website:

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

(2)  EDP definition, all pension funds classified within the general government sector, revised data.

(3)  The programme provides all compulsory and most optional data prescribed by the new code of conduct. The data on employment in hours worked and labour productivity measured as GDP per hours worked have not been provided. There are no data for general government expenditure by function for 2008. Differences between cash and accruals, net accumulation of financial assets are also missing. Total revenues and expenditures in Table 7 (long-term sustainability) are missing

(4)  Details on long-term sustainability are provided in the technical assessment of the programme by the Commission services

(http://europa.eu.int/comm/economy_finance/about/activities/sgp/main_en.htm).

(5)  The budgetary projections exclude the impact of the Eurostat decision of 2 March 2004 on the classification of funded pension schemes, which needs to be implemented by the time of the spring 2007 notification. Including this impact, the general government balance according to the updated programme would be -5.6% of GDP in 2004, -4.7% in 2005, -4.6% in 2006, -4.1% in 2007 and -3.7% in 2008, while government gross debt would be 45.9% of GDP in 2004, 47.9% in 2005, 51.2% in 2006, 52.1% in 2007 and 52.6% in 2008.

(6)  Commission services calculations on the basis of the information in the programme

(7)  Cyclically-adjusted balance and structural balance are the same since one-off and other temporary measures taken from the programme are insignificant (0.04% of GDP in 2005, deficit-reducing)

(8)  There are no one-off and other temporary measures in the Commission services' forecast

(9)  Based on estimated potential growth of 3.3%, 3.6%, 4.2% and 4.5% respectively in the period 2004-2007.

Source:

Convergence programme (CP); Commission services' autumn 2005 economic forecasts (COM); Commission services' calculations

---

| 5.4.2006 | EN | Official Journal of the European Union | C 82/52 |
| --- | --- | --- | --- |

5.4.2006

EN

Official Journal of the European Union

C 82/52

---

COUNCIL OPINION

of 14 March 2006

on the updated convergence programme of the United Kingdom, 2005/2006-2010/2011

(2006/C 82/13)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community,

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 14 March 2006 the Council examined the updated convergence programme of the United Kingdom, covering the period 2005/06 to 2010/11. |
| --- | --- |

(1)

On 14 March 2006 the Council examined the updated convergence programme of the United Kingdom, covering the period 2005/06 to 2010/11.

| (2) | Over the last decade, the United Kingdom macroeconomic performance has been impressive in terms of improved stability, growth, low inflation and labour market outturns. Annual real GDP growth averaged 3,25 % in 1996-2000 and 2,25 % in 2001-05. However, after a period of fiscal consolidation between 1996 and 2001, when the general government balance moved from a deficit of around 5 % of GDP to a comfortable surplus, the United Kingdom has implemented a planned large increase of public expenditure including public investment, with the general government balance changing to a deficit of over 3 % of GDP by 2004. Gross debt declined from over 50 % of GDP in 1996 to below 38 % of GDP in 2002, but has been on a slowly growing path since then. |
| --- | --- |

(2)

Over the last decade, the United Kingdom macroeconomic performance has been impressive in terms of improved stability, growth, low inflation and labour market outturns. Annual real GDP growth averaged 3,25 % in 1996-2000 and 2,25 % in 2001-05. However, after a period of fiscal consolidation between 1996 and 2001, when the general government balance moved from a deficit of around 5 % of GDP to a comfortable surplus, the United Kingdom has implemented a planned large increase of public expenditure including public investment, with the general government balance changing to a deficit of over 3 % of GDP by 2004. Gross debt declined from over 50 % of GDP in 1996 to below 38 % of GDP in 2002, but has been on a slowly growing path since then.

| (3) | In its opinion of 8 March 2005 on the previous update of the convergence programme, the Council invited the United Kingdom to ensure that the deficit was below 3 % of GDP and to improve the cyclically-adjusted position to ensure that a budgetary position close to balance or in surplus was achieved over the medium term. On 24 January 2006, taking into consideration the information contained in the 2005 update of the convergence programme, the Council decided that the United Kingdom deficit was excessive. According to the Council recommendation under Article 104(7) of the same date, the excessive deficit should be corrected by financial year 2006/07 (2). Following the expiry of the six-month period foreseen by the recommendation, the Commission is due to carry out an assessment of the progress made by the United Kingdom authorities towards the correction of the excessive deficit. |
| --- | --- |

(3)

In its opinion of 8 March 2005 on the previous update of the convergence programme, the Council invited the United Kingdom to ensure that the deficit was below 3 % of GDP and to improve the cyclically-adjusted position to ensure that a budgetary position close to balance or in surplus was achieved over the medium term. On 24 January 2006, taking into consideration the information contained in the 2005 update of the convergence programme, the Council decided that the United Kingdom deficit was excessive. According to the Council recommendation under Article 104(7) of the same date, the excessive deficit should be corrected by financial year 2006/07 (2). Following the expiry of the six-month period foreseen by the recommendation, the Commission is due to carry out an assessment of the progress made by the United Kingdom authorities towards the correction of the excessive deficit.

| (4) | As regards budgetary implementation in 2005/06, the general government deficit is estimated at 3,4 % of GDP in the Commission services' autumn 2005 forecast, against a projection of 2,8 % of GDP set in the previous update of the convergence programme. The higher than expected deficit is due to lower than expected GDP growth, now estimated at 1,75 % compared to 3 % in the previous update, to base effects stemming from lower than expected outturns for tax receipts in 2004/05 and, to a lesser extent, to some slight discretionary easing. |
| --- | --- |

(4)

As regards budgetary implementation in 2005/06, the general government deficit is estimated at 3,4 % of GDP in the Commission services' autumn 2005 forecast, against a projection of 2,8 % of GDP set in the previous update of the convergence programme. The higher than expected deficit is due to lower than expected GDP growth, now estimated at 1,75 % compared to 3 % in the previous update, to base effects stemming from lower than expected outturns for tax receipts in 2004/05 and, to a lesser extent, to some slight discretionary easing.

| (5) | The programme broadly follows the model structure, but deviates on some material points from the data provision requirements for stability and convergence programmes specified in the new code of conduct (3). |
| --- | --- |

(5)

The programme broadly follows the model structure, but deviates on some material points from the data provision requirements for stability and convergence programmes specified in the new code of conduct (3).

| (6) | The macroeconomic scenario underlying the budgetary projections envisages real GDP growth to pick up from 1,75 % in 2005/06 to 3 % in 2007/08, and then to dip to 2,75 % in 2008/09 and 2,25 % thereafter. Assessed against currently available information, this scenario appears to be based on broadly plausible growth assumptions with a margin of caution toward the end of the projection horizon. The programme's projections for inflation appear realistic. |
| --- | --- |

(6)

The macroeconomic scenario underlying the budgetary projections envisages real GDP growth to pick up from 1,75 % in 2005/06 to 3 % in 2007/08, and then to dip to 2,75 % in 2008/09 and 2,25 % thereafter. Assessed against currently available information, this scenario appears to be based on broadly plausible growth assumptions with a margin of caution toward the end of the projection horizon. The programme's projections for inflation appear realistic.

| (7) | The updated programme projects a reduction in the deficit from just above 3 % of GDP in financial year 2005/06 to below the 3 % reference value in 2006/07. Thereafter, the deficit is projected to decline to a level of 1,5 % of GDP by 2010/11. The general government primary balance, estimated as a deficit of 1,0 % of GDP in 2005/06, returns to balance in 2008/09 and reaches a surplus of 0,5 % of GDP by 2010/11. The improvement in the nominal balance is mainly driven by a pick-up of revenues, partly due to the projected cyclical recovery of the economy, and partly to an increase in the tax to GDP ratio. The updated programme foresees a small discretionary fiscal tightening in 2006/07 and 2007/08 which is expected to be permanent. The expenditure ratio is projected to increase until 2007/08, driven by a planned increase in expenditure on public services and in public investment. Net public sector investment (including capital grants to the private sector) is planned to rise from 1,6 % of GDP in 2004/05 to 2

  % of GDP by 2006/07, and then remain constant as a percentage of GDP. After 2007/08, current expenditure growth is planned to slow significantly. Thus by 2008/09 the deficit is projected to be entirely used to fund public investment. Compared with the 2004 update, the deficit projections for 2005/06 and 2006/07 have been revised upwards in line with economic developments, while over the medium term they converge to the profile in the previous update. |
| --- | --- |

(7)

Formula

| (8) | Calculated according to the commonly agreed methodology, the programme envisages an average annual improvement of the structural balance (i.e. in cyclically-adjusted terms and net of one-off and other temporary measures) of just above 0,25 percentage points of GDP from an estimated structural deficit of just below 3 % of GDP in 2005/06. This adjustment is front-loaded in 2006/07, when the excessive deficit is planned to be corrected and the negative output gap is at its widest, but slows thereafter, when the negative output gap narrows. A quantitative medium-term objective (MTO) for the structural balance of the general government is not specified. The programme refers to fiscal objectives under the domestic rules, which imply a medium-term path for the cyclically-adjusted deficit, consistent with stabilising the debt-to-GDP ratio at a low level and with keeping the current budget in balance or surplus on average over the economic cycle. |
| --- | --- |

(8)

Calculated according to the commonly agreed methodology, the programme envisages an average annual improvement of the structural balance (i.e. in cyclically-adjusted terms and net of one-off and other temporary measures) of just above 0,25 percentage points of GDP from an estimated structural deficit of just below 3 % of GDP in 2005/06. This adjustment is front-loaded in 2006/07, when the excessive deficit is planned to be corrected and the negative output gap is at its widest, but slows thereafter, when the negative output gap narrows. A quantitative medium-term objective (MTO) for the structural balance of the general government is not specified. The programme refers to fiscal objectives under the domestic rules, which imply a medium-term path for the cyclically-adjusted deficit, consistent with stabilising the debt-to-GDP ratio at a low level and with keeping the current budget in balance or surplus on average over the economic cycle.

| (9) | The budgetary outcome could be worse than projected in the programme, especially in the short term. The projected recovery of the tax to GDP ratio, and in particular of corporation tax revenues, presents risks, to the extent that it depends on an assumption of positive developments in the financial sector that continue into the next year and are not subsequently reversed. On the expenditure side, after the projected rise until 2007/08, the programme update projects a fall in the expenditure ratio after 2007/08 below the levels in 2005/06 that may be challenging. Given existing policy commitments, reducing the expenditure to GDP ratio implies significantly slower current expenditure growth, probably particularly marked in some areas. The comprehensive reassessment of public expenditure being planned in the 2007 Comprehensive Spending Review should help identify areas where public expenditure growth should be reduced. In 2009/10 and 2010/11 these negative risks may be partly offset, principally on the revenue side, by a projection for economic growth that seems to have a margin of caution. |
| --- | --- |

(9)

The budgetary outcome could be worse than projected in the programme, especially in the short term. The projected recovery of the tax to GDP ratio, and in particular of corporation tax revenues, presents risks, to the extent that it depends on an assumption of positive developments in the financial sector that continue into the next year and are not subsequently reversed. On the expenditure side, after the projected rise until 2007/08, the programme update projects a fall in the expenditure ratio after 2007/08 below the levels in 2005/06 that may be challenging. Given existing policy commitments, reducing the expenditure to GDP ratio implies significantly slower current expenditure growth, probably particularly marked in some areas. The comprehensive reassessment of public expenditure being planned in the 2007 Comprehensive Spending Review should help identify areas where public expenditure growth should be reduced. In 2009/10 and 2010/11 these negative risks may be partly offset, principally on the revenue side, by a projection for economic growth that seems to have a margin of caution.

| (10) | With regard to the correction of the excessive deficit, the programme, which was published before the Council recommendation under Article 104(7), projects the deficit to drop below the reference value in 2006/07, while the Commission services estimated at the time of the Council recommendation that, even after the discretionary measures announced in the December 2005 Pre-Budget Report, the deficit is likely to remain slightly above 3 %. Progress towards the correction of the excessive deficit will be assessed by the Commission following the expiry of the six months deadline. On the basis of the minimum benchmark (estimated at a cyclically-adjusted deficit of just below 1,5 % of GDP), the budgetary strategy does not seem, except possibly at the very end of the programme period in 2010/11, to provide a sufficient safety margin against breaching, within normal macroeconomic fluctuations, the 3 % of GDP reference value which the UK is under the obligation to endeavour to avoid. However, projected balances are affected by the implementation of the programme of public investment mentioned above. Following the planned correction of the excessive deficit in 2006/07, the projected structural adjustment slows, when the output gap, despite remaining negative, is set to narrow and developments in tax elasticities are relatively favourable. This suggests that the adjustment path could be strengthened. |
| --- | --- |

(10)

With regard to the correction of the excessive deficit, the programme, which was published before the Council recommendation under Article 104(7), projects the deficit to drop below the reference value in 2006/07, while the Commission services estimated at the time of the Council recommendation that, even after the discretionary measures announced in the December 2005 Pre-Budget Report, the deficit is likely to remain slightly above 3 %. Progress towards the correction of the excessive deficit will be assessed by the Commission following the expiry of the six months deadline. On the basis of the minimum benchmark (estimated at a cyclically-adjusted deficit of just below 1,5 % of GDP), the budgetary strategy does not seem, except possibly at the very end of the programme period in 2010/11, to provide a sufficient safety margin against breaching, within normal macroeconomic fluctuations, the 3 % of GDP reference value which the UK is under the obligation to endeavour to avoid. However, projected balances are affected by the implementation of the programme of public investment mentioned above. Following the planned correction of the excessive deficit in 2006/07, the projected structural adjustment slows, when the output gap, despite remaining negative, is set to narrow and developments in tax elasticities are relatively favourable. This suggests that the adjustment path could be strengthened.

| (11) | The gross debt ratio, though remaining well below the Treaty reference value of 60 % of GDP, is projected to slowly rise over the projection period, peaking at just below 45 % of GDP in 2007/08 from a level of around 41 % in 2004/05. Thereafter the debt ratio is expected to decline slightly. |
| --- | --- |

(11)

The gross debt ratio, though remaining well below the Treaty reference value of 60 % of GDP, is projected to slowly rise over the projection period, peaking at just below 45 % of GDP in 2007/08 from a level of around 41 % in 2004/05. Thereafter the debt ratio is expected to decline slightly.

| (12) | With regard to the sustainability of public finances, in combination with an increase in the cost of ageing, the possibility of insufficient provision of private pensions increasing fiscal costs would put the United Kingdom at medium risk, unless changes are made to improve fiscal sustainability. Over the period until 2050, a contained rise in public pension expenditure is projected. However, higher age-related expenditure pressures cannot be excluded as there is a possibility of insufficient provision of private pensions. Pension policy is currently under review and the government's response to the November 2005 Pensions Commission report is expected in spring this year. The currently favourable debt position contributes to limit somewhat the budgetary impact of ageing populations; however, gross debt is projected to go above the 60 % of GDP reference value during the projection period to 2050 if, compared to the structural budgetary position in 2005/06, no further budgetary consolidation takes place during the programme period. Improving the structural balance of government finances over the medium term would contribute to reducing risks to public finance sustainability (4). |
| --- | --- |

(12)

With regard to the sustainability of public finances, in combination with an increase in the cost of ageing, the possibility of insufficient provision of private pensions increasing fiscal costs would put the United Kingdom at medium risk, unless changes are made to improve fiscal sustainability. Over the period until 2050, a contained rise in public pension expenditure is projected. However, higher age-related expenditure pressures cannot be excluded as there is a possibility of insufficient provision of private pensions. Pension policy is currently under review and the government's response to the November 2005 Pensions Commission report is expected in spring this year. The currently favourable debt position contributes to limit somewhat the budgetary impact of ageing populations; however, gross debt is projected to go above the 60 % of GDP reference value during the projection period to 2050 if, compared to the structural budgetary position in 2005/06, no further budgetary consolidation takes place during the programme period. Improving the structural balance of government finances over the medium term would contribute to reducing risks to public finance sustainability (4).

| (13) | The envisaged measures in the area of public finances are broadly consistent with the broad economic policy guidelines included in the integrated guidelines for the period 2005-2008. The current level of the government debt ratio is still relatively low but the deficit is excessive and remains to be corrected, with further consolidation required to stabilise the debt ratio. It is welcome that general pension provision is under review in order to ensure its accessibility, financial viability and social adequacy. Furthermore, the programme envisages measures to improve the quality of public finances, including a drive to improve effectiveness of public expenditure through better asset management, relocation of civil service positions and a reduction in public sector workforce headcount. |
| --- | --- |

(13)

The envisaged measures in the area of public finances are broadly consistent with the broad economic policy guidelines included in the integrated guidelines for the period 2005-2008. The current level of the government debt ratio is still relatively low but the deficit is excessive and remains to be corrected, with further consolidation required to stabilise the debt ratio. It is welcome that general pension provision is under review in order to ensure its accessibility, financial viability and social adequacy. Furthermore, the programme envisages measures to improve the quality of public finances, including a drive to improve effectiveness of public expenditure through better asset management, relocation of civil service positions and a reduction in public sector workforce headcount.

| (14) | The National Reform Programme of the United Kingdom, submitted on 13 October 2005 in the context of the renewed Lisbon strategy for growth and jobs, identifies the following challenges with significant implications for public finances: maintaining fiscal sustainability in the face of demographic challenges; promoting innovation and R&D; widening opportunities for the acquisition of skills; ensuring fairness through a modern and flexible welfare system; and increasing innovation and adaptability in the use of resources. The budgetary implications of the actions outlined in the National Reform Programme are fully reflected in the budgetary projections of the convergence programme. The measures in the area of public finances envisaged in the convergence programme are broadly in line with the actions foreseen in the National Reform Programme. |
| --- | --- |

(14)

The National Reform Programme of the United Kingdom, submitted on 13 October 2005 in the context of the renewed Lisbon strategy for growth and jobs, identifies the following challenges with significant implications for public finances: maintaining fiscal sustainability in the face of demographic challenges; promoting innovation and R&D; widening opportunities for the acquisition of skills; ensuring fairness through a modern and flexible welfare system; and increasing innovation and adaptability in the use of resources. The budgetary implications of the actions outlined in the National Reform Programme are fully reflected in the budgetary projections of the convergence programme. The measures in the area of public finances envisaged in the convergence programme are broadly in line with the actions foreseen in the National Reform Programme.

In view of the above assessment, the Council notes that the projected adjustment path is subject to risks. In the light of the recommendations under Article 104(7), and in order to address the risks to long-term sustainability, the Council invites the United Kingdom to:

| (i) | ensure that the deficit is brought below 3 % of GDP by 2006/07 in a credible and sustainable manner, and pursue budgetary consolidation thereafter, especially by implementing the projected reduction in expenditure growth after 2007/08; |
| --- | --- |

(i)

ensure that the deficit is brought below 3 % of GDP by 2006/07 in a credible and sustainable manner, and pursue budgetary consolidation thereafter, especially by implementing the projected reduction in expenditure growth after 2007/08;

| (ii) | attain a medium-term objective that ensures rapid progress towards sustainability and a prudent debt ratio well below 60 % of GDP, provides a sufficient safety margin against breaching the 3 % of GDP deficit reference value which the UK is under the obligation to endeavour to avoid, and allows room for budgetary manoeuvre, in particular taking into account the need for public investment. |
| --- | --- |

(ii)

attain a medium-term objective that ensures rapid progress towards sustainability and a prudent debt ratio well below 60 % of GDP, provides a sufficient safety margin against breaching the 3 % of GDP deficit reference value which the UK is under the obligation to endeavour to avoid, and allows room for budgetary manoeuvre, in particular taking into account the need for public investment.

Comparison of key macroeconomic and budgetary projections

| | 2004/05 | 2005/06 | 2006/07 | 2007/08 | 2008/09 | 2009/10 | 2010/11 |
| --- | --- | --- | --- | --- | --- | --- | --- |
| Real GDP
  (% change) | CP Dec 2005 (5) | 2,75 | 1,75 | 2,25 | 3 | 2,75 | 2,25 | 2,25 |
| COM Nov 2005 (6) | 3,2 | 1,6 | 2,3 | 2,8 | n.a. | n.a. | n.a. |
| CP Dec 2004 (5) | 3,25 | 3 | 2,50 | 2,25 | 2,25 | 2,25 | n.a. |
| HICP inflation
  (%) | CP Dec 2005 (5) | 1,25 | 2,25 | 2 | 2 | 2 | 2 | 2 |
| COM Nov 2005 (6) | 1,3 | 2,4 | 2,2 | 2,0 | n.a. | n.a. | n.a. |
| CP Dec 2004 | 1,25 | 1,75 | 2 | 2 | 2 | 2 | n.a. |
| Output gap
  (% of potential GDP) | CP Dec 2005 (7) | 0,5 | – 0,5 | – 1,0 | – 0,8 | – 0,5 | – 0,6 | – 0,6 |
| COM Nov 2005 (8) | 0,6 | – 0,5 | – 0,9 | – 0,8 | n.a. | n.a. | n.a. |
| CP Dec 2004 (7) | – 0,2 | 0,2 | 0,0 | – 0,2 | – 0,3 | n.a. | n.a. |
| General government balance
  (% of GDP) | CP Dec 2005 (9) | – 3,3 | – 3,1 | – 2,8 | – 2,4 | – 1,9 | – 1,7 | – 1,5 |
| COM Nov 2005 (10) | – 3,3 | – 3,4 | – 3,2 | – 3,0 | n.a. | n.a. | n.a. |
| CP Dec 2004 (9) | – 2,9 | – 2,8 | – 2,3 | – 2,1 | – 1,7 | – 1,6 | n.a. |
| Primary balance
  (% of GDP) | CP Dec 2005 (11) | – 1,3 | – 1,0 | – 0,7 | – 0,3 | 0,1 | 0,4 | 0,5 |
| COM Nov 2005 (6) | – 1,5 | – 1,3 | – 1,1 | – 0,8 | n.a. | n.a. | n.a. |
| CP Dec 2004  (11) | – 0,8 | – 0,7 | – 0,2 | – 0,1 | n.a | n.a. | n.a. |
| Cyclically-adjusted balance
  = Structural balance (12)
   (13)

  (% of GDP) | CP Dec 2005 (7)
   (9) | – 3,5 | – 2,9 | – 2,3 | – 2,1 | – 1,7 | – 1,5 | – 1,3 |
| COM Nov 2005 (8) | – 3,4 | – 3,2 | – 2,9 | – 2,7 | n.a. | n.a. | n.a. |
| CP Dec 2004 | – 2,8 | – 2,9 | – 2,3 | – 2,0 | – 1,6 | n.a. | n.a. |
| Government gross debt
  (% of GDP) | CP Dec 2005 | 40,9 | 43,3 | 44,4 | 44,8 | 44,7 | 44,6 | 44,4 |
| COM Nov 2005 | 40,8 | 42,7 | 43,7 | 44,5 | n.a. | n.a. | n.a. |
| CP Dec 2004 | 40,9 | 41,8 | 42,4 | 42,8 | 42,8 | 42,6 | n.a. |
| Convergence programme (CP), Commission services' calculations, Commission services' (COM) autumn 2005 forecast. |

2004/05

2005/06

2006/07

2007/08

2008/09

2009/10

2010/11

Real GDP

(% change)

CP Dec 2005 (5)

2,75

1,75

2,25

3

2,75

2,25

2,25

COM Nov 2005 (6)

3,2

1,6

2,3

2,8

n.a.

n.a.

n.a.

CP Dec 2004 (5)

3,25

3

2,50

2,25

2,25

2,25

n.a.

HICP inflation

(%)

CP Dec 2005 (5)

1,25

2,25

2

2

2

2

2

COM Nov 2005 (6)

1,3

2,4

2,2

2,0

n.a.

n.a.

n.a.

CP Dec 2004

1,25

1,75

2

2

2

2

n.a.

Output gap

(% of potential GDP)

CP Dec 2005 (7)

0,5

– 0,5

– 1,0

– 0,8

– 0,5

– 0,6

– 0,6

COM Nov 2005 (8)

0,6

– 0,5

– 0,9

– 0,8

n.a.

n.a.

n.a.

CP Dec 2004 (7)

– 0,2

0,2

0,0

– 0,2

– 0,3

n.a.

n.a.

General government balance

(% of GDP)

CP Dec 2005 (9)

– 3,3

– 3,1

– 2,8

– 2,4

– 1,9

– 1,7

– 1,5

COM Nov 2005 (10)

– 3,3

– 3,4

– 3,2

– 3,0

n.a.

n.a.

n.a.

CP Dec 2004 (9)

– 2,9

– 2,8

– 2,3

– 2,1

– 1,7

– 1,6

n.a.

Primary balance

(% of GDP)

CP Dec 2005 (11)

– 1,3

– 1,0

– 0,7

– 0,3

0,1

0,4

0,5

COM Nov 2005 (6)

– 1,5

– 1,3

– 1,1

– 0,8

n.a.

n.a.

n.a.

CP Dec 2004  (11)

– 0,8

– 0,7

– 0,2

– 0,1

n.a

n.a.

n.a.

Cyclically-adjusted balance

= Structural balance (12)
   (13)

(% of GDP)

CP Dec 2005 (7)
   (9)

– 3,5

– 2,9

– 2,3

– 2,1

– 1,7

– 1,5

– 1,3

COM Nov 2005 (8)

– 3,4

– 3,2

– 2,9

– 2,7

n.a.

n.a.

n.a.

CP Dec 2004

– 2,8

– 2,9

– 2,3

– 2,0

– 1,6

n.a.

n.a.

Government gross debt

(% of GDP)

CP Dec 2005

40,9

43,3

44,4

44,8

44,7

44,6

44,4

COM Nov 2005

40,8

42,7

43,7

44,5

n.a.

n.a.

n.a.

CP Dec 2004

40,9

41,8

42,4

42,8

42,8

42,6

n.a.

Convergence programme (CP), Commission services' calculations, Commission services' (COM) autumn 2005 forecast.

---

(1)  OJ L 209, 2.8.1997, p. 1. Regulation as amended by Regulation (EC) No 1055/2005 (OJ L 174, 7.7.2005, p. 1). The documents referred to in this text can be found at the following website:

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

(2)  The UK financial year runs from April to March.

(3)  In particular, the section on institutional features of the public finances is missing. The programme has gaps in the provision of compulsory data (for example, the forecasts for employment, unemployment and compensation of employees, and the breakdown of expenditure for the last year required are not provided), and does not provide all optional data. Data for general government expenditure and receipts, while based on ESA 95 components, use different aggregation methods from the harmonised measure. The programme update also continues the UK practice of accounting receipts from the sale of UMTS licences as an annual income stream rather than the sale of an asset, contrary to the Eurostat decision of 14 July 2000 on the allocation of such receipts. A number of data gaps have been filled through bilateral discussions between the Commission services and UK officials.

(4)  Details on long-term sustainability are provided in the technical assessment of the programme by the Commission services

(http://europa.eu.int/comm/economy_finance/about/activities/sgp/main_en.htm).

(5)  GDP and inflation forecast underlying the authorities' projections for the public finances; derived from a scenario whereby trend growth is one-quarter percentage point higher.

(6)  Commission services' forecast is on a calendar year basis. According to first estimates, growth was 1.8% in 2005. The Commission services' interim forecast of 22 February 2006 projects growth of 2.4% in 2006.

(7)  Output gap calculations according to the commonly agreed methodology on the basis of data provided in the convergence programme. The output gap calculations are based on the data underlying the central trend growth scenario. Under the UK methodology, the two yield the same output gap profile.

(8)  Commission services' calculation of output gap is on a calendar year basis.

(9)  Figures in the convergence programme adjusted for treatment of UMTS receipts. The UK authorities include, in their projections for the general government balance, annual receipts of around £1.0 billion from the sale of UMTS licences in 2000. Adjusting for this, to bring the projections onto to an EDP basis, has the effect of subtracting around 0.1 pp from the balance (i.e. increasing the deficit) in each year. All data shown in this table are given after this adjustment, made by the Commission services, to the data in the programme.

(10)  Commission services' forecast is before discretionary measures announced in the December 2005 Pre-Budget Report and included in the convergence programme. Adding the net impact of the measures as estimated by the UK authorities, the Commission services' forecast would be a deficit at 3.4% of GDP in 2005/06, 3.1% in 2006/07 and 2.8% in 2007/08.

(11)  Data from the convergence programme adapted in line with a definition of the primary balance using gross rather than net interest payments.

(12)  Cyclically-adjusted balance (calculated according to the commonly agreed methodology) excluding one-offs and other temporary measures. The figures for cyclically adjusted and structural balances published in the programme, calculated according to the UK's own methodology, and based on nominal balances not corrected for the treatment of UMTS receipts, are: -2.9% of GDP in 2004/05, -2.2% in 2005/06, -1.7% in 2006/07, -1.7% in 2007/08, -1.7% in 2008/09, -1.6% in 2009/10, -1.5% in 2010/11.

(13)  There are no one-offs and temporary measures in the convergence programme projections and in the Commission services' forecast.

Source:

Convergence programme (CP), Commission services' calculations, Commission services' (COM) autumn 2005 forecast.

---

Commission

| 5.4.2006 | EN | Official Journal of the European Union | C 82/57 |
| --- | --- | --- | --- |

5.4.2006

EN

Official Journal of the European Union

C 82/57

---

Euro exchange rates (1)

4 April 2006

(2006/C 82/14)

1 euro=

| | Currency | Exchange rate |
| --- | --- | --- |
| USD | US dollar | 1,2217 |
| JPY | Japanese yen | 143,69 |
| DKK | Danish krone | 7,4628 |
| GBP | Pound sterling | 0,69835 |
| SEK | Swedish krona | 9,3820 |
| CHF | Swiss franc | 1,5804 |
| ISK | Iceland króna | 88,04 |
| NOK | Norwegian krone | 7,8840 |
| BGN | Bulgarian lev | 1,9558 |
| CYP | Cyprus pound | 0,5760 |
| CZK | Czech koruna | 28,513 |
| EEK | Estonian kroon | 15,6466 |
| HUF | Hungarian forint | 264,61 |
| LTL | Lithuanian litas | 3,4528 |
| LVL | Latvian lats | 0,6960 |
| MTL | Maltese lira | 0,4293 |
| PLN | Polish zloty | 3,9483 |
| RON | Romanian leu | 3,5182 |
| SIT | Slovenian tolar | 239,62 |
| SKK | Slovak koruna | 37,515 |
| TRY | Turkish lira | 1,6320 |
| AUD | Australian dollar | 1,6951 |
| CAD | Canadian dollar | 1,4281 |
| HKD | Hong Kong dollar | 9,4804 |
| NZD | New Zealand dollar | 2,0070 |
| SGD | Singapore dollar | 1,9691 |
| KRW | South Korean won | 1 175,89 |
| ZAR | South African rand | 7,3950 |
| CNY | Chinese yuan renminbi | 9,7973 |
| HRK | Croatian kuna | 7,3285 |
| IDR | Indonesian rupiah | 10 983,08 |
| MYR | Malaysian ringgit | 4,495 |
| PHP | Philippine peso | 62,331 |
| RUB | Russian rouble | 33,7470 |
| THB | Thai baht | 47,233 |

Currency

Exchange rate

USD

US dollar

1,2217

JPY

Japanese yen

143,69

DKK

Danish krone

7,4628

GBP

Pound sterling

0,69835

SEK

Swedish krona

9,3820

CHF

Swiss franc

1,5804

ISK

Iceland króna

88,04

NOK

Norwegian krone

7,8840

BGN

Bulgarian lev

1,9558

CYP

Cyprus pound

0,5760

CZK

Czech koruna

28,513

EEK

Estonian kroon

15,6466

HUF

Hungarian forint

264,61

LTL

Lithuanian litas

3,4528

LVL

Latvian lats

0,6960

MTL

Maltese lira

0,4293

PLN

Polish zloty

3,9483

RON

Romanian leu

3,5182

SIT

Slovenian tolar

239,62

SKK

Slovak koruna

37,515

TRY

Turkish lira

1,6320

AUD

Australian dollar

1,6951

CAD

Canadian dollar

1,4281

HKD

Hong Kong dollar

9,4804

NZD

New Zealand dollar

2,0070

SGD

Singapore dollar

1,9691

KRW

South Korean won

1 175,89

ZAR

South African rand

7,3950

CNY

Chinese yuan renminbi

9,7973

HRK

Croatian kuna

7,3285

IDR

Indonesian rupiah

10 983,08

MYR

Malaysian ringgit

4,495

PHP

Philippine peso

62,331

RUB

Russian rouble

33,7470

THB

Thai baht

47,233

---

(1)

Source: reference exchange rate published by the ECB.

---

| 5.4.2006 | EN | Official Journal of the European Union | C 82/58 |
| --- | --- | --- | --- |

5.4.2006

EN

Official Journal of the European Union

C 82/58

---

Withdrawal of notification of a concentration

(Case COMP/M.4162 — Merck/Schering)

(2006/C 82/15)

(Text with EEA relevance)

On 16 March 2006, the Commission of the European Communities received notification of a proposed concentration between Merck KgaA (‘Merck’, Germany) and Schering Aktiengesellschaft (‘Schering’, Germany). On 27 March 2006, the notifying parties informed the Commission that they withdrew their notification.

---

| 5.4.2006 | EN | Official Journal of the European Union | C 82/59 |
| --- | --- | --- | --- |

5.4.2006

EN

Official Journal of the European Union

C 82/59

---

Information procedure — Technical rules

(2006/C 82/16)

(Text with EEA relevance)

Directive 98/34/EC of the European Parliament and of the Council of 22 June 1998 laying down a procedure for the provision of information in the field of technical standards and regulations and of rules on Information Society services. (OJ L 204, 21.7.1998, p. 37; OJ L 217, 5.8.1998, p. 18).

Notifications of draft national technical rules received by the Commission

| Reference (1) | Title | End of three-month standstill period (2) |
| --- | --- | --- |
| 2006/0136/A | Federal Waste Management Plan 2006 — Chapter: ‘Guidelines on the shipment of waste and treatment principles’ | 16.6.2006 |
| 2006/0137/F | Draft Decree on the diagnosis of energy performance and assessment of natural gas installations in buildings offered for sale | 19.6.2006 |
| 2006/0138/UK | Specification for the Reinstatement of Openings in the Highways (The Code) | 23.6.2006 |
| 2006/0139/A | Act enacting the Viennese Act on oil firing 2006 [German designation: WÖlfG 2006] | 19.6.2006 |
| 2006/0140/NL | Regulation by the Secretary of State for Housing, Planning and the Environment containing rules for subsidising motor vehicles with low-emission diesel engines with the right to tax refunds pursuant to the Act on the taxation of passenger cars and motorcycles 1992 (Subsidy Regulation for motor vehicles with low-emission diesel engines and the right to BPM reimbursement) | (4) |

Reference (1)

Title

End of three-month standstill period (2)

2006/0136/A

Federal Waste Management Plan 2006 — Chapter: ‘Guidelines on the shipment of waste and treatment principles’

16.6.2006

2006/0137/F

Draft Decree on the diagnosis of energy performance and assessment of natural gas installations in buildings offered for sale

19.6.2006

2006/0138/UK

Specification for the Reinstatement of Openings in the Highways (The Code)

23.6.2006

2006/0139/A

Act enacting the Viennese Act on oil firing 2006 [German designation: WÖlfG 2006]

19.6.2006

2006/0140/NL

Regulation by the Secretary of State for Housing, Planning and the Environment containing rules for subsidising motor vehicles with low-emission diesel engines with the right to tax refunds pursuant to the Act on the taxation of passenger cars and motorcycles 1992 (Subsidy Regulation for motor vehicles with low-emission diesel engines and the right to BPM reimbursement)

(4)

The Commission draws attention to the judgement delivered on 30 April 1996 in the ‘CIA Security’ case (C-194/94 — ECR I, p. 2201), in which the Court of Justice ruled that Articles 8 and 9 of Directive 98/34/EC (formerly 83/189/EEC) are to be interpreted as meaning that individuals may rely on them before national courts which must decline to apply a national technical regulation which has not been notified in accordance with the Directive.

This judgement confirms the Commission's communication of 1 October 1986 (OJ C 245, 1.10.1986, p. 4).

Accordingly, breach of the obligation to notify renders the technical regulations concerned inapplicable, and consequently unenforceable against individuals.

For more information on the notification procedure, please write to:

| European Commission |
| --- |
| DG Enterprise and Industry, Unit C3 |
| B-1049 Brussels |
| e-mail: Dir83-189-Central@cec.eu.int |

European Commission

DG Enterprise and Industry, Unit C3

B-1049 Brussels

e-mail: Dir83-189-Central@cec.eu.int

Also consult the website: http://europa.eu.int/comm/enterprise/tris/

If you require any further information on these notifications, please contact the national departments listed below:

LIST OF NATIONAL DEPARTMENTS RESPONSIBLE FOR THE MANAGEMENT OF DIRECTIVE 98/34/EC

BELGIUM

| BELNotif |
| --- |
| Qualité et Sécurité |
| SPF Economie, PME, Classes moyennes et Energie |
| NG III — 4ème étage |
| boulevard du Roi Albert II/16 |
| B-1000 Bruxelles |
| Ms Pascaline Descamps |
| Tel.: (32) 2 277 80 03 |
| Fax: (32) 2 277 54 01 |
| E-mail: pascaline.descamps@mineco.fgov.be |
| paolo.caruso@mineco.fgov.be |
| General e-mail: belnotif@mineco.fgov.be |
| Website: http://www.mineco.fgov.be |

BELNotif

Qualité et Sécurité

SPF Economie, PME, Classes moyennes et Energie

NG III — 4ème étage

boulevard du Roi Albert II/16

B-1000 Bruxelles

Ms Pascaline Descamps

Tel.: (32) 2 277 80 03

Fax: (32) 2 277 54 01

E-mail: pascaline.descamps@mineco.fgov.be

paolo.caruso@mineco.fgov.be

General e-mail: belnotif@mineco.fgov.be

Website: http://www.mineco.fgov.be

CZECH REPUBLIC

| Czech Office for Standards, Metrology and Testing |
| --- |
| Gorazdova 24 |
| P.O. BOX 49 |
| CZ-128 01 Praha 2 |
| Mr Miroslav Chloupek |
| Director of International Relations Department |
| Tel.: (420) 224 907 123 |
| Fax: (420) 224 914 990 |
| E-mail: chloupek@unmz.cz |
| Ms Lucie Růžičková |
| Tel.: (420) 224 907 139 |
| Fax: (420) 224 907 122 |
| E-mail: ruzickova@unmz.cz |
| General e-mail: eu9834@unmz.cz |
| Website: http://www.unmz.cz |

Czech Office for Standards, Metrology and Testing

Gorazdova 24

P.O. BOX 49

CZ-128 01 Praha 2

Mr Miroslav Chloupek

Director of International Relations Department

Tel.: (420) 224 907 123

Fax: (420) 224 914 990

E-mail: chloupek@unmz.cz

Ms Lucie Růžičková

Tel.: (420) 224 907 139

Fax: (420) 224 907 122

E-mail: ruzickova@unmz.cz

General e-mail: eu9834@unmz.cz

Website: http://www.unmz.cz

DENMARK

| Erhvervs- og Byggestyrelsen |
| --- |
| (National Agency for Enterprise and Construction) |
| Dahlerups Pakhus |
| Langelinie Allé 17 |
| DK-2100 København Ø (or DK-2100 Copenhagen OE) |
| Mr Bjarne Bang Christensen |
| Legal adviser |
| Tel.: (45) 35 46 63 66 (direct) |
| E-mail: bbc@ebst.dk |
| Ms Birgit Jensen |
| Principal Executive Officer |
| Tel.: (45) 35 46 62 87 (direct) |
| Fax: (45) 35 46 62 03 |
| E-mail: bij@ebst.dk |
| Common mailbox for notification messages — noti@ebst.dk |
| Website: http://www.ebst.dk/Notifikationer |

Erhvervs- og Byggestyrelsen

(National Agency for Enterprise and Construction)

Dahlerups Pakhus

Langelinie Allé 17

DK-2100 København Ø (or DK-2100 Copenhagen OE)

Mr Bjarne Bang Christensen

Legal adviser

Tel.: (45) 35 46 63 66 (direct)

E-mail: bbc@ebst.dk

Ms Birgit Jensen

Principal Executive Officer

Tel.: (45) 35 46 62 87 (direct)

Fax: (45) 35 46 62 03

E-mail: bij@ebst.dk

Common mailbox for notification messages — noti@ebst.dk

Website: http://www.ebst.dk/Notifikationer

GERMANY

| Bundesministerium für Wirtschaft und Technologie |
| --- |
| Referat XA2 |
| Scharnhorststr. 34 — 37 |
| D-10115 Berlin |
| Ms Christina Jäckel |
| Tel.: (49) 30 20 14 63 53 |
| Fax: (49) 30 20 14 53 79 |
| E-mail: infonorm@bmwa.bund.de |
| Website: http://www.bmwa.bund.de |

Bundesministerium für Wirtschaft und Technologie

Referat XA2

Scharnhorststr. 34 — 37

D-10115 Berlin

Ms Christina Jäckel

Tel.: (49) 30 20 14 63 53

Fax: (49) 30 20 14 53 79

E-mail: infonorm@bmwa.bund.de

Website: http://www.bmwa.bund.de

ESTONIA

| Ministry of Economic Affairs and Communications |
| --- |
| Harju str. 11 |
| EE-15072 Tallinn |
| Mr Karl Stern |
| Executive Officer of Trade Policy Division |
| EU and International Co-operation Department |
| Tel.: (372) 6 256 405 |
| Fax: (372) 6 313 029 |
| E-mail: karl.stern@mkm.ee |
| General e-mail: el.teavitamine@mkm.ee |
| Website: http://www.mkm.ee |

Ministry of Economic Affairs and Communications

Harju str. 11

EE-15072 Tallinn

Mr Karl Stern

Executive Officer of Trade Policy Division

EU and International Co-operation Department

Tel.: (372) 6 256 405

Fax: (372) 6 313 029

E-mail: karl.stern@mkm.ee

General e-mail: el.teavitamine@mkm.ee

Website: http://www.mkm.ee

GREECE

| Ministry of Development |
| --- |
| General Secretariat of Industry |
| Mesogeion 119 |
| GR-101 92 Athens |
| Tel.: (30) 210 696 98 63 |
| Fax: (30) 210 696 91 06 |

Ministry of Development

General Secretariat of Industry

Mesogeion 119

GR-101 92 Athens

Tel.: (30) 210 696 98 63

Fax: (30) 210 696 91 06

| ELOT |
| --- |
| Acharnon 313 |
| GR-111 45 Athens |
| Ms Evangelia Alexandri |
| Tel.: (30) 210 212 03 01 |
| Fax: (30) 210 228 62 19 |
| E-mail: alex@elot.gr |
| General e-mail: 83189in@elot.gr |
| Website: http://www.elot.gr |

ELOT

Acharnon 313

GR-111 45 Athens

Ms Evangelia Alexandri

Tel.: (30) 210 212 03 01

Fax: (30) 210 228 62 19

E-mail: alex@elot.gr

General e-mail: 83189in@elot.gr

Website: http://www.elot.gr

SPAIN

| S.G. de Asuntos Industriales, Energéticos, de Transportes y Comunicaciones y de Medio Ambiente |
| --- |
| D.G. de Coordinación del Mercado Interior y otras PPCC |
| Secretaría de Estado para la Unión Europea |
| Ministerio de Asuntos Exteriores y de Cooperación |
| Torres ‘Ágora’ |
| C/ Serrano Galvache, 26-4a |
| E-20033 Madrid |
| Mr Angel Silván Torregrosa |
| Tel.: (34) 91 379 83 32 |
| Ms Esther Pérez Peláez |
| Technical Advisor |
| E-mail: esther.perez@ue.mae.es |
| Tel.: (34) 91 379 84 64 |
| Fax: (34) 91 379 84 01 |
| General e-mail: d83-189@ue.mae.es |

S.G. de Asuntos Industriales, Energéticos, de Transportes y Comunicaciones y de Medio Ambiente

D.G. de Coordinación del Mercado Interior y otras PPCC

Secretaría de Estado para la Unión Europea

Ministerio de Asuntos Exteriores y de Cooperación

Torres ‘Ágora’

C/ Serrano Galvache, 26-4a

E-20033 Madrid

Mr Angel Silván Torregrosa

Tel.: (34) 91 379 83 32

Ms Esther Pérez Peláez

Technical Advisor

E-mail: esther.perez@ue.mae.es

Tel.: (34) 91 379 84 64

Fax: (34) 91 379 84 01

General e-mail: d83-189@ue.mae.es

FRANCE

| Délégation interministérielle aux normes |
| --- |
| Direction générale de l'Industrie, des Technologies de l'information et des Postes (DiGITIP) |
| Service des politiques d'innovation et de compétitivité (SPIC) |
| Sous-direction de la normalisation, de la qualité et de la propriété industrielle (SQUALPI) |
| DiGITIP 5 |
| 12, rue Villiot |
| F-75572 Paris Cedex 12 |
| Ms Suzanne Piau |
| Tel.: (33) 1 53 44 97 04 |
| Fax: (33) 1 53 44 98 88 |
| E-mail: suzanne.piau@industrie.gouv.fr |
| Ms Françoise Ouvrard |
| Tel.: (33) 1 53 44 97 05 |
| Fax: (33) 1 53 44 98 88 |
| E-mail: francoise.ouvrard@industrie.gouv.fr |
| General e-mail: d9834.france@industrie.gouv.fr |

Délégation interministérielle aux normes

Direction générale de l'Industrie, des Technologies de l'information et des Postes (DiGITIP)

Service des politiques d'innovation et de compétitivité (SPIC)

Sous-direction de la normalisation, de la qualité et de la propriété industrielle (SQUALPI)

DiGITIP 5

12, rue Villiot

F-75572 Paris Cedex 12

Ms Suzanne Piau

Tel.: (33) 1 53 44 97 04

Fax: (33) 1 53 44 98 88

E-mail: suzanne.piau@industrie.gouv.fr

Ms Françoise Ouvrard

Tel.: (33) 1 53 44 97 05

Fax: (33) 1 53 44 98 88

E-mail: francoise.ouvrard@industrie.gouv.fr

General e-mail: d9834.france@industrie.gouv.fr

IRELAND

| NSAI |
| --- |
| Glasnevin |
| Dublin 9 |
| Ireland |
| Mr Tony Losty |
| Tel.: (353) 1 807 38 80 |
| Fax: (353) 1 807 38 38 |
| E-mail: tony.losty@nsai.ie |
| Website: http://www.nsai.ie |

NSAI

Glasnevin

Dublin 9

Ireland

Mr Tony Losty

Tel.: (353) 1 807 38 80

Fax: (353) 1 807 38 38

E-mail: tony.losty@nsai.ie

Website: http://www.nsai.ie

ITALY

| Ministero delle attività produttive |
| --- |
| Direzione Generale per lo sviluppo produttivo e la competitività |
| Ufficio F1 — Ispettorato tecnico dell'industria |
| Via Molise 2 |
| I-00187 Roma |
| Mr Vincenzo Correggia |
| Tel.: (39) 06 47 05 22 05 |
| Fax: (39) 06 47 88 78 05 |
| E-mail: vincenzo.correggia@attivitaproduttive.gov.it |
| Mr Enrico Castiglioni |
| Tel.: (39) 06 47 05 26 69 |
| Fax: (39) 06 47 88 78 05 |
| E-mail: enrico.castiglioni@attivitaproduttive.gov.it |
| General e-mail: ucn98.34.italia@attivitaproduttive.gov.it |
| Website: http://www.minindustria.it |

Ministero delle attività produttive

Direzione Generale per lo sviluppo produttivo e la competitività

Ufficio F1 — Ispettorato tecnico dell'industria

Via Molise 2

I-00187 Roma

Mr Vincenzo Correggia

Tel.: (39) 06 47 05 22 05

Fax: (39) 06 47 88 78 05

E-mail: vincenzo.correggia@attivitaproduttive.gov.it

Mr Enrico Castiglioni

Tel.: (39) 06 47 05 26 69

Fax: (39) 06 47 88 78 05

E-mail: enrico.castiglioni@attivitaproduttive.gov.it

General e-mail: ucn98.34.italia@attivitaproduttive.gov.it

Website: http://www.minindustria.it

CYPRUS

| Cyprus Organization for the Promotion of Quality |
| --- |
| Ministry of Commerce, Industry and Tourism |
| 13-15, A. Araouzou street |
| CY-1421 Nicosia |
| Tel.: (357) 22 40 93 10 |
| Fax: (357) 22 75 41 03 |
| Mr Antonis Ioannou |
| Tel.: (357) 22 40 94 09 |
| Fax: (357) 22 75 41 03 |
| E-mail: aioannou@cys.mcit.gov.cy |
| General e-mail: dir9834@cys.mcit.gov.cy |
| Website: http://www.cys.mcit.gov.cy |

Cyprus Organization for the Promotion of Quality

Ministry of Commerce, Industry and Tourism

13-15, A. Araouzou street

CY-1421 Nicosia

Tel.: (357) 22 40 93 10

Fax: (357) 22 75 41 03

Mr Antonis Ioannou

Tel.: (357) 22 40 94 09

Fax: (357) 22 75 41 03

E-mail: aioannou@cys.mcit.gov.cy

General e-mail: dir9834@cys.mcit.gov.cy

Website: http://www.cys.mcit.gov.cy

LATVIA

| Ministry of Economics of Republic of Latvia |
| --- |
| Trade Normative and SOLVIT Notification Division |
| SOLVIT Coordination Centre |
| 55, Brīvības Street |
| LV-1519 Riga |
| Reinis Berzins |
| Deputy Head of Trade Normative and SOLVIT Notification Division |
| Tel.: (371) 701 32 30 |
| Fax: (371) 728 08 82 |
| Zanda Liekna |
| Senior Officer of Division of EU Internal Market Coordination |
| Tel.: (371) 701 32 36 |
| Tel.: (371) 701 30 67 |
| Fax: (371) 728 08 82 |
| E-mail: zanda.liekna@em.gov.lv |
| General e-mail: notification@em.gov.lv |

Ministry of Economics of Republic of Latvia

Trade Normative and SOLVIT Notification Division

SOLVIT Coordination Centre

55, Brīvības Street

LV-1519 Riga

Reinis Berzins

Deputy Head of Trade Normative and SOLVIT Notification Division

Tel.: (371) 701 32 30

Fax: (371) 728 08 82

Zanda Liekna

Senior Officer of Division of EU Internal Market Coordination

Tel.: (371) 701 32 36

Tel.: (371) 701 30 67

Fax: (371) 728 08 82

E-mail: zanda.liekna@em.gov.lv

General e-mail: notification@em.gov.lv

LITHUANIA

| Lithuanian Standards Board |
| --- |
| T. Kosciuskos g. 30 |
| LT-01100 Vilnius |
| Ms Daiva Lesickiene |
| Tel.: (370) 5 270 93 47 |
| Fax: (370) 5 270 93 67 |
| E-mail: dir9834@lsd.lt |
| Website: http://www.lsd.lt |

Lithuanian Standards Board

T. Kosciuskos g. 30

LT-01100 Vilnius

Ms Daiva Lesickiene

Tel.: (370) 5 270 93 47

Fax: (370) 5 270 93 67

E-mail: dir9834@lsd.lt

Website: http://www.lsd.lt

LUXEMBURG

| SEE — Service de l'Energie de l'Etat |
| --- |
| 34, avenue de la Porte-Neuve B.P. 10 |
| L-2010 Luxembourg |
| Mr J.P. Hoffmann |
| Tel.: (352) 46 97 46 1 |
| Fax: (352) 22 25 24 |
| E-mail: see.direction@eg.etat.lu |
| Website: http://www.see.lu |

SEE — Service de l'Energie de l'Etat

34, avenue de la Porte-Neuve B.P. 10

L-2010 Luxembourg

Mr J.P. Hoffmann

Tel.: (352) 46 97 46 1

Fax: (352) 22 25 24

E-mail: see.direction@eg.etat.lu

Website: http://www.see.lu

HUNGARY

| Hungarian Notification Centre — |
| --- |
| Ministry of Economy and Transport |
| Industrial Department |
| Budapest |
| Honvéd u. 13-15. |
| H-1880 |
| Mr Zsolt Fazekas |
| Leading Councillor |
| E-mail: fazekas.zsolt@gkm.gov.hu |
| Tel.: (36) 1 374 28 73 |
| Fax: (36) 1 473 16 22 |
| E-mail: notification@gkm.gov.hu |
| Website: http://www.gkm.hu/dokk/main/gkm |

Hungarian Notification Centre —

Ministry of Economy and Transport

Industrial Department

Budapest

Honvéd u. 13-15.

H-1880

Mr Zsolt Fazekas

Leading Councillor

E-mail: fazekas.zsolt@gkm.gov.hu

Tel.: (36) 1 374 28 73

Fax: (36) 1 473 16 22

E-mail: notification@gkm.gov.hu

Website: http://www.gkm.hu/dokk/main/gkm

MALTA

| Malta Standards Authority |
| --- |
| Level 2 |
| Evans Building |
| Merchants Street |
| VLT 03 |
| MT-Valletta |
| Tel.: (356) 21 24 24 20 |
| Tel.: (356) 21 24 32 82 |
| Fax: (356) 21 24 24 06 |
| Ms Lorna Cachia |
| E-mail: lorna.cachia@msa.org.mt |
| General e-mail: notification@msa.org.mt |
| Website: http://www.msa.org.mt |

Malta Standards Authority

Level 2

Evans Building

Merchants Street

VLT 03

MT-Valletta

Tel.: (356) 21 24 24 20

Tel.: (356) 21 24 32 82

Fax: (356) 21 24 24 06

Ms Lorna Cachia

E-mail: lorna.cachia@msa.org.mt

General e-mail: notification@msa.org.mt

Website: http://www.msa.org.mt

NETHERLANDS

| Ministerie van Financiën |
| --- |
| Belastingsdienst/Douane Noord |
| Team bijzondere klantbehandeling |
| Centrale Dienst voor In-en uitvoer |
| Engelse Kamp 2 |
| Postbus 30003 |
| 9700 RD Groningen |
| Nederland |
| Mr Ebel van der Heide |
| Tel.: (31) 50 5 23 21 34 |
| Ms Hennie Boekema |
| Tel.: (31) 50 5 23 21 35 |
| Ms Tineke Elzer |
| Tel.: (31) 50 5 23 21 33 |
| Fax: (31) 50 5 23 21 59 |
| General e-mail: |
| Enquiry.Point@tiscali-business.nl |
| Enquiry.Point2@tiscali-business.nl |

Ministerie van Financiën

Belastingsdienst/Douane Noord

Team bijzondere klantbehandeling

Centrale Dienst voor In-en uitvoer

Engelse Kamp 2

Postbus 30003

9700 RD Groningen

Nederland

Mr Ebel van der Heide

Tel.: (31) 50 5 23 21 34

Ms Hennie Boekema

Tel.: (31) 50 5 23 21 35

Ms Tineke Elzer

Tel.: (31) 50 5 23 21 33

Fax: (31) 50 5 23 21 59

General e-mail:

Enquiry.Point@tiscali-business.nl

Enquiry.Point2@tiscali-business.nl

AUSTRIA

| Bundesministerium für Wirtschaft und Arbeit |
| --- |
| Abteilung C2/1 |
| Stubenring 1 |
| A-1010 Wien |
| Ms Brigitte Wikgolm |
| Tel.: (43) 1 711 00 58 96 |
| Fax: (43) 1 715 96 51 or (43) 1 712 06 80 |
| E-mail: not9834@bmwa.gv.at |
| Website: http://www.bmwa.gv.at |

Bundesministerium für Wirtschaft und Arbeit

Abteilung C2/1

Stubenring 1

A-1010 Wien

Ms Brigitte Wikgolm

Tel.: (43) 1 711 00 58 96

Fax: (43) 1 715 96 51 or (43) 1 712 06 80

E-mail: not9834@bmwa.gv.at

Website: http://www.bmwa.gv.at

POLAND

| Ministry of Economy and Labour |
| --- |
| Department for European and Multilateral Relations |
| Plac Trzech Krzyży 3/5 |
| PL-00-507 Warszawa |
| Ms Barbara Nieciak |
| Tel.: (48) 22 693 54 07 |
| Fax: (48) 22 693 40 28 |
| E-mail: barnie@mg.gov.pl |
| Ms Agata Gągor |
| Tel.: (48) 22 693 56 90 |
| General e-mail: notyfikacja@mg.gov.pl |

Ministry of Economy and Labour

Department for European and Multilateral Relations

Plac Trzech Krzyży 3/5

PL-00-507 Warszawa

Ms Barbara Nieciak

Tel.: (48) 22 693 54 07

Fax: (48) 22 693 40 28

E-mail: barnie@mg.gov.pl

Ms Agata Gągor

Tel.: (48) 22 693 56 90

General e-mail: notyfikacja@mg.gov.pl

PORTUGAL

| Instituto Portugês da Qualidade |
| --- |
| Rua Antonio Gião, 2 |
| P-2829-513 Caparica |
| Ms Cândida Pires |
| Tel.: (351) 21 294 82 36 or 81 00 |
| Fax: (351) 21 294 82 23 |
| E-mail: c.pires@mail.ipq.pt |
| General e-mail: not9834@mail.ipq.pt |
| Website: http://www.ipq.pt |

Instituto Portugês da Qualidade

Rua Antonio Gião, 2

P-2829-513 Caparica

Ms Cândida Pires

Tel.: (351) 21 294 82 36 or 81 00

Fax: (351) 21 294 82 23

E-mail: c.pires@mail.ipq.pt

General e-mail: not9834@mail.ipq.pt

Website: http://www.ipq.pt

SLOVENIA

| SIST — Slovenian Institute for Standardization |
| --- |
| Contact point for 98/34/EC and WTO-TBT Enquiry Point |
| Šmartinska 140 |
| SLO-1000 Ljubljana |
| Ms Vesna Stražišar |
| Tel.: (386) 1 478 30 41 |
| Fax: (386) 1 478 30 98 |
| E-mail: contact@sist.si |

SIST — Slovenian Institute for Standardization

Contact point for 98/34/EC and WTO-TBT Enquiry Point

Šmartinska 140

SLO-1000 Ljubljana

Ms Vesna Stražišar

Tel.: (386) 1 478 30 41

Fax: (386) 1 478 30 98

E-mail: contact@sist.si

SLOVAKIA

| Ms Kvetoslava Steinlova |
| --- |
| Director of the Department of European Integration, |
| Office of Standards, Metrology and Testing of the Slovak Republic |
| Stefanovicova 3 |
| SK-814 39 Bratislava |
| Tel.: (421) 2 52 49 35 21 |
| Fax: (421) 2 52 49 10 50 |
| E-mail: steinlova@normoff.gov.sk |

Ms Kvetoslava Steinlova

Director of the Department of European Integration,

Office of Standards, Metrology and Testing of the Slovak Republic

Stefanovicova 3

SK-814 39 Bratislava

Tel.: (421) 2 52 49 35 21

Fax: (421) 2 52 49 10 50

E-mail: steinlova@normoff.gov.sk

FINLAND

| Kauppa- ja teollisuusministeriö |
| --- |
| (Ministry of Trade and Industry) |
| Visitor address: |
| Aleksanterinkatu 4 |
| FIN-00171 Helsinki |
| and |
| Katakatu 3 |
| FIN-00120 Helsinki |
| Postal address: |
| PO Box 32 |
| FIN-00023 Government |
| Ms Leila Orava |
| Tel.: (358) 9 1606 46 86 |
| Fax: (358) 9 1606 46 22 |
| E-mail: leila.orava@ktm.fi |
| Ms Katri Amper |
| Tel.: (358) 9 1606 46 48 |
| General e-mail: maaraykset.tekniset@ktm.fi |
| Website: http://www.ktm.fi |

Kauppa- ja teollisuusministeriö

(Ministry of Trade and Industry)

Visitor address:

Aleksanterinkatu 4

FIN-00171 Helsinki

and

Katakatu 3

FIN-00120 Helsinki

Postal address:

PO Box 32

FIN-00023 Government

Ms Leila Orava

Tel.: (358) 9 1606 46 86

Fax: (358) 9 1606 46 22

E-mail: leila.orava@ktm.fi

Ms Katri Amper

Tel.: (358) 9 1606 46 48

General e-mail: maaraykset.tekniset@ktm.fi

Website: http://www.ktm.fi

SWEDEN

| Kommerskollegium |
| --- |
| (National Board of Trade) |
| Box 6803 |
| Drottninggatan 89 |
| S–113 86 Stockholm |
| Ms Kerstin Carlsson |
| Tel.: (46) 86 90 48 82 or (46) 86 90 48 00 |
| Fax: (46) 8 690 48 40 or (46) 83 06 759 |
| E-mail: kerstin.carlsson@kommers.se |
| General e-mail: 9834@kommers.se |
| Website: http://www.kommers.se |

Kommerskollegium

(National Board of Trade)

Box 6803

Drottninggatan 89

S–113 86 Stockholm

Ms Kerstin Carlsson

Tel.: (46) 86 90 48 82 or (46) 86 90 48 00

Fax: (46) 8 690 48 40 or (46) 83 06 759

E-mail: kerstin.carlsson@kommers.se

General e-mail: 9834@kommers.se

Website: http://www.kommers.se

UNITED KINGDOM

| Department of Trade and Industry |
| --- |
| Standards and Technical Regulations Directorate 2 |
| 151 Buckingham Palace Road |
| London SW1 W 9SS |
| United Kingdom |
| Mr Philip Plumb |
| Tel.: (44) 2072151488 |
| Fax: (44) 2072151529 |
| E-mail: philip.plumb@dti.gsi.gov.uk |
| General e-mail: 9834@dti.gsi.gov.uk |
| Website: http://www.dti.gov.uk/strd |

Department of Trade and Industry

Standards and Technical Regulations Directorate 2

151 Buckingham Palace Road

London SW1 W 9SS

United Kingdom

Mr Philip Plumb

Tel.: (44) 2072151488

Fax: (44) 2072151529

E-mail: philip.plumb@dti.gsi.gov.uk

General e-mail: 9834@dti.gsi.gov.uk

Website: http://www.dti.gov.uk/strd

EFTA — ESA

| EFTA Surveillance Authority |
| --- |
| Rue Belliard 35 |
| B-1040 Bruxelles |
| Ms Adinda Batsleer |
| Tel.: (32) 2 286 18 61 |
| Fax: (32) 2 286 18 00 |
| E-mail: aba@eftasurv.int |
| Ms Tuija Ristiluoma |
| Tel.: (32) 2 286 18 71 |
| Fax: (32) 2 286 18 00 |
| E-mail: tri@eftasurv.int |
| General e-mail: DRAFTTECHREGESA@eftasurv.int |
| Website: http://www.eftasurv.int |

EFTA Surveillance Authority

Rue Belliard 35

B-1040 Bruxelles

Ms Adinda Batsleer

Tel.: (32) 2 286 18 61

Fax: (32) 2 286 18 00

E-mail: aba@eftasurv.int

Ms Tuija Ristiluoma

Tel.: (32) 2 286 18 71

Fax: (32) 2 286 18 00

E-mail: tri@eftasurv.int

General e-mail: DRAFTTECHREGESA@eftasurv.int

Website: http://www.eftasurv.int

| EFTA |
| --- |
| Goods Unit |
| EFTA Secretariat |
| Rue Joseph II 12-16 |
| B-1000 Bruxelles |
| Ms Kathleen Byrne |
| Tel.: (32) 2 286 17 49 |
| Fax: (32) 2 286 17 42 |
| E-mail: kathleen.byrne@efta.int |
| General e-mail: DRAFTTECHREGEFTA@efta.int |
| Website: http://www.efta.int |

EFTA

Goods Unit

EFTA Secretariat

Rue Joseph II 12-16

B-1000 Bruxelles

Ms Kathleen Byrne

Tel.: (32) 2 286 17 49

Fax: (32) 2 286 17 42

E-mail: kathleen.byrne@efta.int

General e-mail: DRAFTTECHREGEFTA@efta.int

Website: http://www.efta.int

TURKEY

| Undersecretariat of Foreign Trade |
| --- |
| General Directorate of Standardisation for Foreign Trade |
| Inönü Bulvari no 36 |
| 06510 |
| Emek — Ankara |
| Mr Mehmet Comert |
| Tel.: (90) 312 212 58 98 |
| Fax: (90) 312 212 87 68 |
| E-mail: comertm@dtm.gov.tr |
| Website: http://www.dtm.gov.tr |

Undersecretariat of Foreign Trade

General Directorate of Standardisation for Foreign Trade

Inönü Bulvari no 36

06510

Emek — Ankara

Mr Mehmet Comert

Tel.: (90) 312 212 58 98

Fax: (90) 312 212 87 68

E-mail: comertm@dtm.gov.tr

Website: http://www.dtm.gov.tr

---

(1)  Year — registration number — Member State of origin.

(2)  Period during which the draft may not be adopted.

(3)  No standstill period since the Commission accepts the grounds of urgent adoption invoked by the notifying Member State.

(4)  No standstill period since the measure concerns technical specifications or other requirements or rules on services linked to fiscal or financial measures, pursuant to the third indent of the second paragraph of Article 1(11) of Directive 98/34/EC.

(5)  Information procedure closed.

---

| 5.4.2006 | EN | Official Journal of the European Union | C 82/64 |
| --- | --- | --- | --- |

5.4.2006

EN

Official Journal of the European Union

C 82/64

---

Notice of initiation of a partial interim review of the anti-dumping measures applicable to imports of silicon originating in Russia

(2006/C 82/17)

The Commission has received a request for a partial interim review pursuant to Article 11 (3) of Council Regulation (EC) No 384/96 on protection against dumped imports from countries not members of the European Community (‘the basic Regulation’) (1), as last amended by Council Regulation (EC) No 2117/2005 (2).

1.   Request for review

The request was lodged by SKU LLC, Sual-Kremny-Ural, Kamensk, Ural Region, Russia, and ZAO KREMNY, Irkutsk, Irkutsk Region, Russia (‘the applicant’), related exporters from Russia.

The request is limited in scope to the examination of dumping as far as the applicant is concerned.

2.   Product

The product under review is silicon originating in Russia (‘the product concerned’), currently classifiable within CN code 2804 69 00. This CN code is given only for information.

3.   Existing measures

The measures currently in force are a definitive anti-dumping duty imposed by Council Regulation (EC) No 2229/2003 (3), as last amended by Council Regulation (EC) No 821/2004 (4) on imports of silicon originating in Russia. An undertaking offered by the applicant has been accepted by Commission Decision of 13 April 2004 (5).

4.   Grounds for the review

The request pursuant to Article 11(3) is based on prima facie evidence, provided by the applicant, that the circumstances on the basis of which measures were established have changed and that these changes are of a lasting nature.

The applicant alleges, inter alia, that its export prices of the product concerned to the Community have increased significantly and substantially more than the domestic prices in Russia. This has led to a reduction or elimination of dumping. Therefore the continued imposition of measures at the existing levels, which were based on the level of dumping previously established is no longer necessary to offset dumping.

5.   Procedure for the determination of dumping

Having determined, after consulting the Advisory Committee, that sufficient evidence exists to justify the initiation of a partial interim review, the Commission hereby initiates a review in accordance with Article 11 (3) of the basic Regulation.

The investigation will assess the need for the continuation, removal or amendment of the existing measures in respect of the applicant.

(a)   Questionnaires

In order to obtain the information it deems necessary for its investigation, the Commission will send questionnaires to the applicant and to the authorities of the exporting country concerned. This information and supporting evidence should reach the Commission within the time limit set in point 6(a).

(b)   Collection of information and holding of hearings.

All interested parties are hereby invited to make their views known, submit information other than questionnaire replies and to provide supporting evidence. This information and supporting evidence must reach the Commission within the time limit set in point 6(a).

Furthermore, the Commission may hear interested parties, provided that they make a request showing that there are particular reasons why they should be heard. This request must be made within the time limit set in point 6(b).

6.   Time limits

(a)   For parties to make themselves known, to submit questionnaire replies and any other information

All interested parties, if their representations are to be taken into account during the investigation, must make themselves known by contacting the Commission, present their views and submit questionnaire replies or any other information within 40 days of the date of publication of this notice in the Official Journal of the European Union, unless otherwise specified. .Attention is drawn to the fact that the exercise of most procedural rights set out in the basic Regulation depends on the party's making itself known within the aforementioned period.

(b)   Hearings

All interested parties may also apply to be heard by the Commission within the same 40-day time limit.

7.   Written submissions, questionnaire replies and correspondence

All submissions and requests made by interested parties must be made in writing (not in electronic format, unless otherwise specified) and must indicate the name, address, e-mail address, telephone and fax numbers of the interested party. All written submissions, including the information requested in this notice, questionnaire replies and correspondence provided by interested parties on a confidential basis shall be labelled as ‘Limited
   (6)’ and, in accordance with Article 19(2) of the basic Regulation, shall be accompanied by a non-confidential version, which will be labelled ‘FOR INSPECTION BY INTERESTED PARTIES’.

Commission address for correspondence:

| European Commission |
| --- |
| Directorate General for Trade |
| Directorate B |
| Office: J-79 5/16 |
| B-1049 Brussels |
| Fax (32-2) 295 65 05 |

European Commission

Directorate General for Trade

Directorate B

Office: J-79 5/16

B-1049 Brussels

Fax (32-2) 295 65 05

8.   Non-co-operation

In cases in which any interested party refuses access to or does not provide the necessary information within the time limits, or significantly impedes the investigation, findings, affirmative or negative, may be made in accordance with Article 18 of the basic Regulation, on the basis of the facts available.

Where it is found that any interested party has supplied false or misleading information, the information shall be disregarded and use may be made, in accordance with Article 18 of the basic Regulation, of the facts available. If an interested party does not cooperate or cooperates only partially, and use of facts available is made, the result may be less favourable to that party than if it had cooperated.

---

(1)  OJ L 56, 6.3.1996, p. 1.

(2)  OJ L 340, 23.12.2005, p. 17.

(3)  OJ L 339, 24.12.2003, p. 3.

(4)  OJ L 127, 29.4.2004, p. 1.

(5)  OJ L 127, 29.4.2004, p. 114.

(6)  This means that the document is for internal use only. It is protected pursuant to Article 4 of Regulation (EC) No 1049/2001 of the European Parliament and of the Council regarding public access to European Parliament, Council and Commission documents (OJ L 145, 31.5.2001, p. 43). It is a confidential document pursuant to Article 19 of the basic Regulation and Article 6 of the WTO Agreement on Implementation of Article VI of the GATT 1994 (Anti-dumping Agreement).

---

| 5.4.2006 | EN | Official Journal of the European Union | C 82/66 |
| --- | --- | --- | --- |

5.4.2006

EN

Official Journal of the European Union

C 82/66

---

Information communicated by Member States regarding State aid granted under Commission Regulation (EC) No 68/2001 of 12 January 2001 on the application of Articles 87 and 88 of the EC Treaty to training aid

(2006/C 82/18)

(Text with EEA relevance)

| Aid No | XT 34/2004 |
| --- | --- |
| Member State | Austria |
| Region | Carinthia |
| Title of aid scheme or name of company receiving an individual aid | Carinthian business training offensive |
| Legal basis | Ziel-2-Programm Kärnten 2000 — 2006 |
| Annual expenditure planned or overall amount of individual aid granted to the company | Aid scheme | approx. EUR 1,2 million |
| Maximum aid intensity | In conformity with Article 4(2)-(7) of the Regulation | Yes | General training






  — | Large enterprises: 50 % |

Aid No

XT 34/2004

Member State

Austria

Region

Carinthia

Title of aid scheme or name of company receiving an individual aid

Carinthian business training offensive

Legal basis

Ziel-2-Programm Kärnten 2000 — 2006

Annual expenditure planned or overall amount of individual aid granted to the company

Aid scheme

approx. EUR 1,2 million

Maximum aid intensity

In conformity with Article 4(2)-(7) of the Regulation

Yes

General training

—

Large enterprises: 50 %

| — | Small and medium-sized enterprises (SMEs): 70 % |
| --- | --- |

—

Small and medium-sized enterprises (SMEs): 70 %

| — | Maximum aid intensity: 70 % of eligible costs |
| --- | --- |

—

Maximum aid intensity: 70 % of eligible costs

| — | Specific training |
| --- | --- |

—

Specific training

| — | Large enterprises: 25 % |
| --- | --- |

—

Large enterprises: 25 %

| — | Small and medium-sized enterprises (SMEs): 35 % |
| --- | --- |

—

Small and medium-sized enterprises (SMEs): 35 %

| — | Maximum aid intensity: 35 % of eligible costs |
| --- | --- |

—

Maximum aid intensity: 35 % of eligible costs

Date of implementation

1.6.2004

Duration of scheme or individual aid award

Until 31.12.2006

Objective of aid

General training

Strengthening of the human resources potential through training, and support for firms' growth opportunities through future-oriented manpower development strategies

Specific training

Economic sectors concerned

All sectors eligible for training aid

No

Limited to specific sectors

Yes

| — | Agriculture |
| --- | --- |

—

Agriculture

No

| — | Fisheries and aquaculture |
| --- | --- |

—

Fisheries and aquaculture

No

| — | Coalmining |
| --- | --- |

—

Coalmining

No

| — | All manufacturing |
| --- | --- |

—

All manufacturing

No

or

Steel

No

Shipbuilding

No

Synthetic fibres

No

Motor vehicles

No

Other manufacturing

Manufacture of machinery and equipment (NACE 29, 34 and 35)

Manufacture of wood and wood products (NACE 20)

Manufacture of chemicals and chemical products (NACE 24)

Research and development (NACE 73)

Manufacture of pulp, paper and paper products (NACE 21)

| — | All services |
| --- | --- |

—

All services

No

or

Maritime transport services

No

Other transport services

No

Financial services

No

Other services

Electronics, software, hardware and data communications (NACE 30-33 and 72)

Name and address of the granting authority

Name:

Amt der Kärntner Landesregierung, Unterabteilung 6 — Bildungs- und Arbeitsmarktpolitik

Adress:

| Mießtaler Straße 12 |
| --- |
| A-9020 Klagenfurt |

Mießtaler Straße 12

A-9020 Klagenfurt

Large individual aid grants

In conformity with Article 5 of the Regulation

Yes

| Aid No | XT 87/04 |
| --- | --- |
| Member State | Germany |
| Region | Lower Saxony |
| Title of aid scheme or name of company receiving individual aid | Guidelines on the granting of aid for the promotion of measures under the Further Training Plan for small and medium-sized businesses (ESF — Objective 3) |
| Legal basis | § 44 der Niedersächsischen Landeshaushaltsordnung (LHO) |
| Annual expenditure planned or overall amount of individual aid granted to the company | Aid scheme | Annual overall amount | EUR 9 million |
| Loans guaranteed | |
| Individual aid | Overall aid amount | |
| Loans guaranteed | |
| Maximum aid intensity | In conformity with Article 4(2)-(7) of the Regulation | Yes | |
| Date of implementation | 7.10.2004 |
| Duration of scheme or individual aid award | Expires on 31.12.2006 |
| Objective of aid | General training | Yes |
| Specific training | Yes |
| Economic sectors concerned | All sectors eligible for training aid | Yes |
| Name and address of the granting authority | Name:
  Investitions- und Förderbank Niedersachsen GmbH (NBank) |
| Address:





  Günther-Wagner-Allee 12-14 |
| D-30177 Hannover |

Aid No

XT 87/04

Member State

Germany

Region

Lower Saxony

Title of aid scheme or name of company receiving individual aid

Guidelines on the granting of aid for the promotion of measures under the Further Training Plan for small and medium-sized businesses (ESF — Objective 3)

Legal basis

§ 44 der Niedersächsischen Landeshaushaltsordnung (LHO)

Annual expenditure planned or overall amount of individual aid granted to the company

Aid scheme

Annual overall amount

EUR 9 million

Loans guaranteed

Individual aid

Overall aid amount

Loans guaranteed

Maximum aid intensity

In conformity with Article 4(2)-(7) of the Regulation

Yes

Date of implementation

7.10.2004

Duration of scheme or individual aid award

Expires on 31.12.2006

Objective of aid

General training

Yes

Specific training

Yes

Economic sectors concerned

All sectors eligible for training aid

Yes

Name and address of the granting authority

Name:

Investitions- und Förderbank Niedersachsen GmbH (NBank)

Address:

Günther-Wagner-Allee 12-14

D-30177 Hannover

Tel.: 0511/30031 — 0

info@nbank.de

Large individual aid grants

In conformity with Article 5 of the Regulation

Yes

| Aid No | XT 94/04 |
| --- | --- |
| Member State | Czech Republic |
| Region | NUTS III — South Moravia, Zlín and Moravian Silesia regions |
| Title of aid scheme or name of company receiving individual aid | INTERREG IIIA Czech Republic — Slovakia |
| Legal basis | Usnesení vlády ČR č. 432/2004 ze dne 5. května 2004 k programu Iniciativy Společenství INTERREG IIIA České republiky a Polska, Slovenska, Rakouska, Bavorska a Saska |
| Annual expenditure planned or overall amount of individual aid granted to the company | Aid scheme | Annual overall amount | EUR 0,27486 million |
| Loans guaranteed | |
| Individual aid | Overall aid amount | |
| Loans guaranteed | |
| Maximum aid intensity | In conformity with Article 4(2)-(7) of the Regulation | Yes | |
| Date of implementation | 28.10.2004 |
| Duration of scheme or individual aid award | Until 31.12.2006 |
| Objective of aid | General training | Yes |
| Specific training | |
| Economic sectors concerned | All sectors eligible for training aid | Yes |
| Name and address of the granting authority | Name:
  Ministry for Regional Development |
| Address:





  Staromestske nam. 6 |
| CZ-110 15 Prague 1 |

Aid No

XT 94/04

Member State

Czech Republic

Region

NUTS III — South Moravia, Zlín and Moravian Silesia regions

Title of aid scheme or name of company receiving individual aid

INTERREG IIIA Czech Republic — Slovakia

Legal basis

Usnesení vlády ČR č. 432/2004 ze dne 5. května 2004 k programu Iniciativy Společenství INTERREG IIIA České republiky a Polska, Slovenska, Rakouska, Bavorska a Saska

Annual expenditure planned or overall amount of individual aid granted to the company

Aid scheme

Annual overall amount

EUR 0,27486 million

Loans guaranteed

Individual aid

Overall aid amount

Loans guaranteed

Maximum aid intensity

In conformity with Article 4(2)-(7) of the Regulation

Yes

Date of implementation

28.10.2004

Duration of scheme or individual aid award

Until 31.12.2006

Objective of aid

General training

Yes

Specific training

Economic sectors concerned

All sectors eligible for training aid

Yes

Name and address of the granting authority

Name:

Ministry for Regional Development

Address:

Staromestske nam. 6

CZ-110 15 Prague 1

Large individual aid grants

In conformity with Article 5 of the Regulation

Yes

| Aid No | XT 6/05 |
| --- | --- |
| Member State | United Kingdom |
| Region | West Wales & The Valleys Objective 1 Region |
| Title of aid scheme or name of company receiving individual aid | The Merthyr Tydfil Institute for the Blind |
| Legal basis | Industrial Development Act 1982 |
| Annual expenditure planned under the scheme or overall amount of individual aid granted to the company | Aid scheme | Annual overall amount | |
| Loans guaranteed | |
| Individual aid | Overall aid amount | GBP 65,014 |
| Loans guaranteed | |
| Maximum aid intensity | In conformity with Article 4(2)-(7) of the Regulation | Yes | |
| Date of implementation | From 6.1.2005 |
| Duration of scheme or individual aid award | NB
  As noted above, the Grant was committed prior to 31 December 2006. Payments against this commitment will, potentially (in line with N+2), continue until 1 September 2007 |
| Objective of aid | General training | Yes |
| Specific training | No |
| Economic sectors concerned | All sectors eligible for training aid | No |
| Limited to specific sectors | Yes |
| Other manufacturing (indoor & outdoor furniture) | Yes |
| Name and address of the granting authority | Name
  Welsh European Funding Office |
| Address





  Cwm Cynon Business Park |
| Mountain Ash CF45 4ER |
| United Kingdom |

Aid No

XT 6/05

Member State

United Kingdom

Region

West Wales & The Valleys Objective 1 Region

Title of aid scheme or name of company receiving individual aid

The Merthyr Tydfil Institute for the Blind

Legal basis

Industrial Development Act 1982

Annual expenditure planned under the scheme or overall amount of individual aid granted to the company

Aid scheme

Annual overall amount

Loans guaranteed

Individual aid

Overall aid amount

GBP 65,014

Loans guaranteed

Maximum aid intensity

In conformity with Article 4(2)-(7) of the Regulation

Yes

Date of implementation

From 6.1.2005

Duration of scheme or individual aid award

NB

As noted above, the Grant was committed prior to 31 December 2006. Payments against this commitment will, potentially (in line with N+2), continue until 1 September 2007

Objective of aid

General training

Yes

Specific training

No

Economic sectors concerned

All sectors eligible for training aid

No

Limited to specific sectors

Yes

Other manufacturing (indoor & outdoor furniture)

Yes

Name and address of the granting authority

Name

Welsh European Funding Office

Address

Cwm Cynon Business Park

Mountain Ash CF45 4ER

United Kingdom

Large individual aid grants

In conformity with Article 5 of the Regulation

Yes

| Aid Number | XT 45/05 |
| --- | --- |
| Member State | United Kingdom |
| Region | Whole of the UK |
| Title of aid scheme or name of company receiving an individual aid | Bio-energy Infrastructure Scheme |
| Legal basis | Environmental Protection Act 1990 (UK legislation) |
| Annual expenditure planned under the scheme or overall amount of individual aid granted to the company | Aid scheme | Annual overall amount | EUR 5,1 million |
| Loans guaranteed | |
| Individual aid | Overall aid amount | |
| Loans guaranteed | |
| Maximum aid intensity | In conformity with Article 4(2)-(6) of the Regulation | Yes | |
| Date of implementation | From 29.7.2005 |
| Duration of scheme or individual aid award | To 31.12.2006 |
| Objective of aid | General training | No |
| Specific training | Yes |
| Economic sectors concerned | All sectors eligible for training aid | No |
| Limited to specific sectors | Yes |
| — | Agriculture |

Aid Number

XT 45/05

Member State

United Kingdom

Region

Whole of the UK

Title of aid scheme or name of company receiving an individual aid

Bio-energy Infrastructure Scheme

Legal basis

Environmental Protection Act 1990 (UK legislation)

Annual expenditure planned under the scheme or overall amount of individual aid granted to the company

Aid scheme

Annual overall amount

EUR 5,1 million

Loans guaranteed

Individual aid

Overall aid amount

Loans guaranteed

Maximum aid intensity

In conformity with Article 4(2)-(6) of the Regulation

Yes

Date of implementation

From 29.7.2005

Duration of scheme or individual aid award

To 31.12.2006

Objective of aid

General training

No

Specific training

Yes

Economic sectors concerned

All sectors eligible for training aid

No

Limited to specific sectors

Yes

—

Agriculture

Yes

Other manufacturing

Yes

Other services

Yes

Name and address of the granting authority

Name:

Department for Environment, Food and Rural Affairs

Address:

| Katherine Donne |
| --- |
| Crops for Energy Branch, Area 5A |
| Ergon House |
| Horseferry Road |
| London SWIP 2AL |
| United Kingdom |

Katherine Donne

Crops for Energy Branch, Area 5A

Ergon House

Horseferry Road

London SWIP 2AL

United Kingdom

Large individual aid grants

In conformity with Article 5 of the Regulation

The measure excludes awards of aid or requires prior notification to the Commission of awards of aid, if the amount of aid granted to one enterprise for a single training project exceeds 1 000 000 EUR

Yes

| Aid No | XT 60/05 |
| --- | --- |
| Member State | UK |
| Region | North West |
| Title of aid scheme or name of company receiving individual aid | Greater Merseyside Learning & Skills Council
  Merseyside LSC Investment proposals for training in Priority One 2005 – 2008. (Measures 4 & 12) |
| Legal basis | Learning and Skills Act 2000, Employment Act 1973, Section 2(1) and 2(2) as substantiated by Section 25 of the Employment and Training Act 1998 |
| Annual expenditure planned under the scheme or overall amount of individual aid granted to the company | Aid scheme | Annual overall amount | GBP 20 million |
| Loans guaranteed | |
| Individual aid | Overall aid amount | |
| Loans guaranteed | |
| Maximum aid intensity | In conformity with Article 4(2)-(7) of the Regulation | Yes | |
| Date of implementation | From: 1.4.2005 |
| Duration of scheme or individual aid award | Until: 31.12.2006 (project completes 31.7.2008) |
| Objective of aid | General training | Yes |
| Specific training | |
| Economic sectors concerned | All sectors eligible for training aid | Yes |
| Name and address of the granting authority | Name:
  Government Office for the North West (GONW) |
| Address:





  Cunard Building, |
| Pier Head, Water Street |
| Liverpool, L3 1QB |
| United Kingdom |

Aid No

XT 60/05

Member State

UK

Region

North West

Title of aid scheme or name of company receiving individual aid

Greater Merseyside Learning & Skills Council

Merseyside LSC Investment proposals for training in Priority One 2005 – 2008. (Measures 4 & 12)

Legal basis

Learning and Skills Act 2000, Employment Act 1973, Section 2(1) and 2(2) as substantiated by Section 25 of the Employment and Training Act 1998

Annual expenditure planned under the scheme or overall amount of individual aid granted to the company

Aid scheme

Annual overall amount

GBP 20 million

Loans guaranteed

Individual aid

Overall aid amount

Loans guaranteed

Maximum aid intensity

In conformity with Article 4(2)-(7) of the Regulation

Yes

Date of implementation

From: 1.4.2005

Duration of scheme or individual aid award

Until: 31.12.2006 (project completes 31.7.2008)

Objective of aid

General training

Yes

Specific training

Economic sectors concerned

All sectors eligible for training aid

Yes

Name and address of the granting authority

Name:

Government Office for the North West (GONW)

Address:

Cunard Building,

Pier Head, Water Street

Liverpool, L3 1QB

United Kingdom

Large individual aid grants

In conformity with Article 5 of the Regulation

Yes

---

| 5.4.2006 | EN | Official Journal of the European Union | C 82/71 |
| --- | --- | --- | --- |

5.4.2006

EN

Official Journal of the European Union

C 82/71

---

STATE AID — ITALY

State aid No C 34/2005 (ex N 113/2005) — Legge Regionale n. 17/2004 Art. 60 — Regione Sicilia

Invitation to submit comments pursuant to Article 88(2) of the EC Treaty

(2006/C 82/19)

(Text with EEA relevance)

By means of the letter dated 21 September 2005 reproduced in the authentic language on the pages following this summary, the Commission notified Italy of its decision to initiate the procedure laid down in Article 88(2) of the EC Treaty concerning the above mentioned measures.

Interested parties may submit their comments on the measures in respect of which the Commission is initiating the procedure within one month of the date of publication of this summary and the following letter, to:

| European Commission |
| --- |
| Directorate-General for Competition |
| Directorate State Aid I |
| B-1049 Brussels |
| Fax No: (32-2) 296 95 80 |

European Commission

Directorate-General for Competition

Directorate State Aid I

B-1049 Brussels

Fax No: (32-2) 296 95 80

These comments will be communicated to Italy. Confidential treatment of the identity of the interested party submitting the comments may be requested in writing, stating the reasons for the request.

SUMMARY

DESCRIPTION OF THE MEASURE

Comma 1 of Article 60 of Legge Regionale n.17, of 28 December 2004 (LR 17/2004) provides for a reduction in the rate of IRAP by 1 % in 2005, 0,75 % in 2006 and 0,5 % in 2007 for cooperatives (more precisely to ‘società cooperative a mutualità prevalente’) as defined in the Italian Civil Code. Comma 2 of the same Article extends the same benefit to security services companies as defined in Royal Decree n. 773/1931. These reductions have been decided by Regione Sicilia by virtue of the powers to adjust IRAP rate recognised to any Italian Region. The Italian authorities estimate that the budgetary impact of Article 60 at hand will be around EUR 2 million for the all period 2005-2007.

ASSESSMENT OF THE MEASURE

According to the Commission, the above advantage seems to fulfil all the relevant conditions of Article 87(1) of the EC Treaty.

The measure appears to afford to the beneficiaries an economic advantage consisting in the reduction of IRAP for a period of three years. The advantage seems also selective because it is restricted to cooperatives and to security services companies. Moreover the advantage seems to be attributable to the State as it consists in the foregoing of tax revenues by the Sicilian government.

Finally, the measure appears likely to distort competition and trade between Member States because the beneficiaries — be they cooperatives or security services companies — compete with other undertakings on markets open to competition. Indeed, cooperatives can be of all sizes and carry on business in all sectors, according to the submissions by the Italian authorities and therefore they compete with other undertakings on markets open to competition. Analogously, although the Italian authorities in their submissions argue that usually security services are not provided out of the territory where the security services companies are located, the Commission considers, at this step of the procedure, that the Italian authorities did not provide enough information to prove that competition for all kind of services supplied by security services companies has not taken place on an supranational scale and that trade and competition are not affected.

The Commission has doubts as to whether the state aid granted in favour of cooperatives and security services companies is compatible with the single market. At this stage of the procedure, it appears that the exceptions provided for in Article 87(2) and in Articles 87(3)(b), (c) and (d) cannot apply to the measure in question. The Italian authorities have presented some arguments to indicate that the exception provided for in Articles 87, paragraph (3)(a) of the EC Treaty, under which operating State aid may be considered compatible with the common market, applies in the present case, given that Sicily is an eligible region under such derogation.

However, The Commission, observes that the measure, as aid, must be considered as operating State aid because the tax advantage granted by the regime are not related to specific investments, to job creation or to specific projects but it constitutes a reduction of charges that should normally be borne by the firms concerned in the course of their business — in this case the IRAP tax liability. According to its established practice, the Commission considers that operating aid is normally prohibited. Such aid may be granted exceptionally provided that (i) it is justified in terms of its contribution to regional development and its nature and (ii) its level is proportional to the handicaps it seeks to alleviate. It is for the Member State to demonstrate the existence of any handicaps and gauge their importance.

At this step of the procedure, the Commission doubts that the Member State demonstrated the existence of a pertinent handicap and gauged its importance. In any case, Commission observes that the information submitted so far does not allow the Commission, to verify if the aid in question is justified by its contribution to regional development and if the amount of the aid provided is proportional to the handicaps it seeks to alleviate.

Since the measure, as aid, does not appear, at this step of the procedure, to qualify for any of the exceptions provided for in the Treaty, in the context of its preliminary assessment as provided by article 6 of Council Regulation (EC) No 659/1999 laying down detailed rules for the application of Article 93 [now 88] of the EC Treaty, the Commission has doubts about its compatibility with the common market.

Considering its doubts on the compatibility of the aid, the Commission proposes to initiate the formal investigation procedure laid down in Article 88(2) of the EC Treaty.

TEXT OF LETTER

‘Con la presente la Commissione si pregia informare l'Italia che, dopo aver esaminato le informazioni fornite dalle autorità italiane in merito alla misura menzionata in oggetto, ha deciso di avviare il procedimento di cui all'articolo 88, paragrafo 2, del trattato CE.

PROCEDIMENTO

| 1) | Con lettera del 9 marzo 2005 (A/2484), le autorità italiane hanno notificato l'articolo 60 della legge regionale 28 dicembre 2004, n. 17 (denominata nel prosieguo “LR 17/2004”). Con lettere del 29 marzo 2005 (D/52385) e del 10 giugno 2005 (D/54467), la Commissione ha chiesto ulteriori informazioni alle autorità italiane. Queste ultime hanno risposto con lettera del 18 maggio 2005 (A/34055), a seguito di un sollecito della Commissione del 27 aprile 2005 (D/53374), e con lettere del 12 luglio 2005 (A/35835) e del 14 luglio 2005 (A/35958). |
| --- | --- |

1)

Con lettera del 9 marzo 2005 (A/2484), le autorità italiane hanno notificato l'articolo 60 della legge regionale 28 dicembre 2004, n. 17 (denominata nel prosieguo “LR 17/2004”). Con lettere del 29 marzo 2005 (D/52385) e del 10 giugno 2005 (D/54467), la Commissione ha chiesto ulteriori informazioni alle autorità italiane. Queste ultime hanno risposto con lettera del 18 maggio 2005 (A/34055), a seguito di un sollecito della Commissione del 27 aprile 2005 (D/53374), e con lettere del 12 luglio 2005 (A/35835) e del 14 luglio 2005 (A/35958).

| 2) | La LR 17/2004 è entrata in vigore il 29 dicembre 2004, ma l'articolo 60 dispone che, fino all'autorizzazione da parte della Commissione europea, la misura è soggetta al regolamento de minimis
   (1). |
| --- | --- |

2)

La LR 17/2004 è entrata in vigore il 29 dicembre 2004, ma l'articolo 60 dispone che, fino all'autorizzazione da parte della Commissione europea, la misura è soggetta al regolamento de minimis
   (1).

1.   DESCRIZIONE DETTAGLIATA DELLA MISURA

| 3) | Secondo le autorità italiane, la misura mira ad incentivare la creazione di nuove imprese e a ridurre il gap esistente tra le imprese operanti in Sicilia e le imprese situate in altre regioni italiane. |
| --- | --- |

3)

Secondo le autorità italiane, la misura mira ad incentivare la creazione di nuove imprese e a ridurre il gap esistente tra le imprese operanti in Sicilia e le imprese situate in altre regioni italiane.

| 4) | Inoltre, la misura in questione è finalizzata ad aumentare le prospettive di investimento in Sicilia attraverso il miglioramento degli standard di sicurezza e la prevenzione del crimine. |
| --- | --- |

4)

Inoltre, la misura in questione è finalizzata ad aumentare le prospettive di investimento in Sicilia attraverso il miglioramento degli standard di sicurezza e la prevenzione del crimine.

| 5) | L'articolo 60, comma 1 della LR 17/2004 prevede una riduzione dell'aliquota dell'IRAP dell'1 % nel 2005, dello 0,75 % nel 2006 e dello 0,5 % nel 2007 per le cooperative (più precisamente per le “società cooperative a mutualità prevalente”) quali definite nel Codice civile italiano (2). |
| --- | --- |

5)

L'articolo 60, comma 1 della LR 17/2004 prevede una riduzione dell'aliquota dell'IRAP dell'1 % nel 2005, dello 0,75 % nel 2006 e dello 0,5 % nel 2007 per le cooperative (più precisamente per le “società cooperative a mutualità prevalente”) quali definite nel Codice civile italiano (2).

| 6) | Il comma 2 dello stesso articolo estende lo stesso beneficio agli istituti esercenti attività di vigilanza privata quali definiti nel Regio decreto 18 giugno 1931, n. 773, che definisce le condizioni alle quali enti e privati possono essere autorizzati dal prefetto a prestare servizi di vigilanza o custodia di proprietà mobiliari od immobiliari e servizi di investigazione privata (3). |
| --- | --- |

6)

Il comma 2 dello stesso articolo estende lo stesso beneficio agli istituti esercenti attività di vigilanza privata quali definiti nel Regio decreto 18 giugno 1931, n. 773, che definisce le condizioni alle quali enti e privati possono essere autorizzati dal prefetto a prestare servizi di vigilanza o custodia di proprietà mobiliari od immobiliari e servizi di investigazione privata (3).

| 7) | L'IRAP è stata istituita con il decreto legislativo 15 dicembre 1997, n. 446 (in appresso LD 446/97) con l'intento di fornire alle autorità regionali la fonte di reddito necessaria per finanziare l'esercizio autonomo dei poteri loro devoluti. Le principali caratteristiche dell'IRAP possono essere così riassunte:






  i) | soggetti passivi dell'IRAP sono persone fisiche, società ed enti che svolgono un'attività diretta alla produzione o allo scambio di beni ovvero alla prestazione di servizi; |
| --- | --- | --- |

7)

L'IRAP è stata istituita con il decreto legislativo 15 dicembre 1997, n. 446 (in appresso LD 446/97) con l'intento di fornire alle autorità regionali la fonte di reddito necessaria per finanziare l'esercizio autonomo dei poteri loro devoluti. Le principali caratteristiche dell'IRAP possono essere così riassunte:

i)

soggetti passivi dell'IRAP sono persone fisiche, società ed enti che svolgono un'attività diretta alla produzione o allo scambio di beni ovvero alla prestazione di servizi;

| ii) | l'imposta si applica sul valore della produzione netta derivante dall'attività esercitata nel territorio della regione. Di norma, per le imprese commerciali, tale valore è determinato dalla differenza, risultante nel conto economico, tra la somma dei ricavi, dei proventi e degli altri componenti reddituali classificabili nelle voci del valore della produzione, esclusi i proventi di operazioni finanziarie straordinarie, e la somma dei costi di produzione, esclusi i costi finanziari e le spese per il personale (4); |
| --- | --- |

ii)

l'imposta si applica sul valore della produzione netta derivante dall'attività esercitata nel territorio della regione. Di norma, per le imprese commerciali, tale valore è determinato dalla differenza, risultante nel conto economico, tra la somma dei ricavi, dei proventi e degli altri componenti reddituali classificabili nelle voci del valore della produzione, esclusi i proventi di operazioni finanziarie straordinarie, e la somma dei costi di produzione, esclusi i costi finanziari e le spese per il personale (4);

| iii) | l'aliquota di base dell'imposta è pari al 4,25 %; |
| --- | --- |

iii)

l'aliquota di base dell'imposta è pari al 4,25 %;

| iv) | l'IRAP è dovuta alla regione nel cui territorio è realizzato il valore della produzione netta e tutte le regioni hanno facoltà di maggiorare o ridurre l'aliquota di base fino ad un massimo di un punto percentuale e di differenziare l'aggiustamento per settore di attività. |
| --- | --- |

iv)

l'IRAP è dovuta alla regione nel cui territorio è realizzato il valore della produzione netta e tutte le regioni hanno facoltà di maggiorare o ridurre l'aliquota di base fino ad un massimo di un punto percentuale e di differenziare l'aggiustamento per settore di attività.

| 8) | Le riduzioni dell'aliquota dell'IRAP di cui all'articolo 60, commi 1 e 2, della LR 17/2004 sono state decise dalle autorità regionali siciliane in virtù della facoltà di modificare l'aliquota, riconosciuta a qualsiasi regione italiana. |
| --- | --- |

8)

Le riduzioni dell'aliquota dell'IRAP di cui all'articolo 60, commi 1 e 2, della LR 17/2004 sono state decise dalle autorità regionali siciliane in virtù della facoltà di modificare l'aliquota, riconosciuta a qualsiasi regione italiana.

| 9) | I beneficiari applicheranno la riduzione automaticamente al momento del pagamento dell'IRAP. |
| --- | --- |

9)

I beneficiari applicheranno la riduzione automaticamente al momento del pagamento dell'IRAP.

| 10) | Le autorità italiane stimano che l'articolo 60 avrà un impatto sul bilancio quantificabile in circa 2 milioni di EUR per l'intero periodo 2005-2007. |
| --- | --- |

10)

Le autorità italiane stimano che l'articolo 60 avrà un impatto sul bilancio quantificabile in circa 2 milioni di EUR per l'intero periodo 2005-2007.

| 11) | Infine occorre notare che dinanzi alla Corte di giustizia (5) è pendente una causa riguardante la compatibilità dell'IRAP con l'articolo 33, paragrafo 1, della sesta direttiva 77/388/CE del Consiglio, del 17 maggio 1977. In base alle conclusioni dell'avvocato generale del 17 marzo 2005, un'imposta nazionale come l'IRAP si configura come un'imposta sul fatturato, in quanto tale vietata dall'articolo 33, paragrafo 1, della sesta direttiva. Tale causa potrebbe ovviamente avere conseguenze per la misura descritta nel presente documento qualora la Corte stabilisse che l'IRAP non è conforme al diritto comunitario. |
| --- | --- |

11)

Infine occorre notare che dinanzi alla Corte di giustizia (5) è pendente una causa riguardante la compatibilità dell'IRAP con l'articolo 33, paragrafo 1, della sesta direttiva 77/388/CE del Consiglio, del 17 maggio 1977. In base alle conclusioni dell'avvocato generale del 17 marzo 2005, un'imposta nazionale come l'IRAP si configura come un'imposta sul fatturato, in quanto tale vietata dall'articolo 33, paragrafo 1, della sesta direttiva. Tale causa potrebbe ovviamente avere conseguenze per la misura descritta nel presente documento qualora la Corte stabilisse che l'IRAP non è conforme al diritto comunitario.

2.   VALUTAZIONE DELLA MISURA

Aiuti di Stato ai sensi dell'articolo 87, paragrafo 1 del trattato CE

| 12) | Per accertare se, nel caso di specie, la misura costituisca un aiuto ai sensi dell'articolo 87, paragrafo 1 del trattato CE, la Commissione deve valutare se essa favorisca talune imprese o talune produzioni, conferendo un vantaggio di natura economica, se tale vantaggio falsi o minacci di falsare la concorrenza, se esso sia concesso mediante risorse statali e se sia atto ad incidere sugli scambi tra Stati membri. |
| --- | --- |

12)

Per accertare se, nel caso di specie, la misura costituisca un aiuto ai sensi dell'articolo 87, paragrafo 1 del trattato CE, la Commissione deve valutare se essa favorisca talune imprese o talune produzioni, conferendo un vantaggio di natura economica, se tale vantaggio falsi o minacci di falsare la concorrenza, se esso sia concesso mediante risorse statali e se sia atto ad incidere sugli scambi tra Stati membri.

Vantaggio economico

| 13) | La Commissione ritiene che la misura sembra conferire ai beneficiari un vantaggio economico consistente nella riduzione dell'IRAP pagata dai beneficiari per un importo corrispondente all'1 %, allo 0,75 % ed allo 0,5 % del valore della produzione netta dell'impresa, quale definito sopra. |
| --- | --- |

13)

La Commissione ritiene che la misura sembra conferire ai beneficiari un vantaggio economico consistente nella riduzione dell'IRAP pagata dai beneficiari per un importo corrispondente all'1 %, allo 0,75 % ed allo 0,5 % del valore della produzione netta dell'impresa, quale definito sopra.

| 14) | L'abbattimento del carico fiscale effettivo consente alle imprese beneficiarie di avvalersi di una riduzione dell'imposta dovuta, che si traduce in un vantaggio finanziario di cui le predette imprese beneficiano immediatamente negli anni in cui la riduzione viene applicata. |
| --- | --- |

14)

L'abbattimento del carico fiscale effettivo consente alle imprese beneficiarie di avvalersi di una riduzione dell'imposta dovuta, che si traduce in un vantaggio finanziario di cui le predette imprese beneficiano immediatamente negli anni in cui la riduzione viene applicata.

Favorire talune imprese o attività economiche

| 15) | I vantaggi di cui sopra sembrano favorire talune imprese per una serie di ragioni. |
| --- | --- |

15)

I vantaggi di cui sopra sembrano favorire talune imprese per una serie di ragioni.

Comma 1

| 16) | La Commissione osserva che il comma 1 sembra avere carattere selettivo, in quanto il vantaggio che comporta è riservato esclusivamente alle cooperative siciliane. Pertanto, il comma 1 esclude dai potenziali beneficiari del regime le imprese siciliane operanti in qualsiasi settore, non aventi forma di cooperative. Sebbene talune misure fiscali riguardanti le cooperative possano essere giustificate dalla natura e dalla struttura generale del sistema, in particolare quando è previsto che l'imposta sia riscossa in capo ai soci (6), una simile giustificazione non sembra riscontrarsi nel caso in esame. L'IRAP, quale definita dal legislatore nazionale, si applica nella stessa maniera alle cooperative e ad altri tipi di imprese, cosicché la riduzione dell'aliquota decisa da una particolare regione per talune cooperative può difficilmente essere considerata un elemento intrinseco alla logica del sistema fiscale. |
| --- | --- |

16)

La Commissione osserva che il comma 1 sembra avere carattere selettivo, in quanto il vantaggio che comporta è riservato esclusivamente alle cooperative siciliane. Pertanto, il comma 1 esclude dai potenziali beneficiari del regime le imprese siciliane operanti in qualsiasi settore, non aventi forma di cooperative. Sebbene talune misure fiscali riguardanti le cooperative possano essere giustificate dalla natura e dalla struttura generale del sistema, in particolare quando è previsto che l'imposta sia riscossa in capo ai soci (6), una simile giustificazione non sembra riscontrarsi nel caso in esame. L'IRAP, quale definita dal legislatore nazionale, si applica nella stessa maniera alle cooperative e ad altri tipi di imprese, cosicché la riduzione dell'aliquota decisa da una particolare regione per talune cooperative può difficilmente essere considerata un elemento intrinseco alla logica del sistema fiscale.

Comma 2

| 17) | La Commissione osserva che il comma 2 sembra fornire un vantaggio selettivo per le ragioni seguenti. Innanzitutto, le misure sembrano favorire l'attività economica consistente nella prestazione di servizi di vigilanza. Conformemente ad una giurisprudenza consolidata (7), ciò equivarrebbe ad una misura selettiva che favorisce l'attività di cui sopra, poiché non è rivolta alle imprese operanti in altri settori. |
| --- | --- |

17)

La Commissione osserva che il comma 2 sembra fornire un vantaggio selettivo per le ragioni seguenti. Innanzitutto, le misure sembrano favorire l'attività economica consistente nella prestazione di servizi di vigilanza. Conformemente ad una giurisprudenza consolidata (7), ciò equivarrebbe ad una misura selettiva che favorisce l'attività di cui sopra, poiché non è rivolta alle imprese operanti in altri settori.

| 18) | In secondo luogo, le imprese di vigilanza offrono i servizi seguenti: i) deposito temporaneo di valori e trasporto e scorta di beni e persone; ii) vigilanza sulle proprietà; iii) gestione di impianti specializzati per l'archiviazione e iv) produzione di apparecchi e sistemi di sicurezza. La Commissione ritiene che parte di questi servizi possa essere prestata da imprese che non siano istituti esercenti attività di vigilanza privata ai sensi del Regio decreto n. 773/1931. |
| --- | --- |

18)

In secondo luogo, le imprese di vigilanza offrono i servizi seguenti: i) deposito temporaneo di valori e trasporto e scorta di beni e persone; ii) vigilanza sulle proprietà; iii) gestione di impianti specializzati per l'archiviazione e iv) produzione di apparecchi e sistemi di sicurezza. La Commissione ritiene che parte di questi servizi possa essere prestata da imprese che non siano istituti esercenti attività di vigilanza privata ai sensi del Regio decreto n. 773/1931.

| 19) | Poiché le autorità italiane non hanno fornito alcuna informazione in proposito, nella fase attuale del procedimento, la Commissione ritiene che questa distinzione sembra porre le altre imprese operanti in almeno uno dei sottosettori di cui sopra in una posizione svantaggiata rispetto agli istituti esercenti attività di vigilanza privata quali definiti nel Regio decreto n. 773/1931. |
| --- | --- |

19)

Poiché le autorità italiane non hanno fornito alcuna informazione in proposito, nella fase attuale del procedimento, la Commissione ritiene che questa distinzione sembra porre le altre imprese operanti in almeno uno dei sottosettori di cui sopra in una posizione svantaggiata rispetto agli istituti esercenti attività di vigilanza privata quali definiti nel Regio decreto n. 773/1931.

Distorsione della concorrenza ed incidenza sugli scambi tra gli Stati membri

| 20) | Secondo una giurisprudenza consolidata (8), perché una misura falsi la concorrenza è sufficiente che il destinatario dell'aiuto sia in concorrenza con altre imprese su mercati aperti alla concorrenza. |
| --- | --- |

20)

Secondo una giurisprudenza consolidata (8), perché una misura falsi la concorrenza è sufficiente che il destinatario dell'aiuto sia in concorrenza con altre imprese su mercati aperti alla concorrenza.

| 21) | La Commissione osserva che le misure di cui ai commi 1 e 2 sembrano falsare la concorrenza ed incidere sugli scambi tra Stati membri, in quanto il loro effetto è liberare i beneficiari da un onere al quale sarebbero altrimenti soggetti. |
| --- | --- |

21)

La Commissione osserva che le misure di cui ai commi 1 e 2 sembrano falsare la concorrenza ed incidere sugli scambi tra Stati membri, in quanto il loro effetto è liberare i beneficiari da un onere al quale sarebbero altrimenti soggetti.

| 22) | Nella fattispecie, secondo le informazioni trasmesse dalle autorità italiane, i beneficiari sono cooperative (comma 1) di tutte le dimensioni, operanti in tutti i settori. Giacché le cooperative competono con altre imprese in mercati aperti alla concorrenza, il comma 1 è atto a falsare la concorrenza e ad incidere sugli scambi, secondo quanto sancito da una giurisprudenza consolidata. |
| --- | --- |

22)

Nella fattispecie, secondo le informazioni trasmesse dalle autorità italiane, i beneficiari sono cooperative (comma 1) di tutte le dimensioni, operanti in tutti i settori. Giacché le cooperative competono con altre imprese in mercati aperti alla concorrenza, il comma 1 è atto a falsare la concorrenza e ad incidere sugli scambi, secondo quanto sancito da una giurisprudenza consolidata.

| 23) | Analogamente la Commissione ritiene che la misura di cui al comma 2 sembra falsare la concorrenza ed incidere sugli scambi tra gli Stati membri. Sebbene, nelle informazioni trasmesse, le autorità italiane sostengano che di norma i servizi di vigilanza non sono prestati al di fuori del territorio nel quale le imprese di vigilanza sono stabilite e che queste imprese devono ottenere una particolare licenza per esercitare le loro attività, la Commissione considera che, in questa fase del procedimento, le autorità italiane non hanno fornito informazioni sufficienti per dimostrare che per i quattro servizi di cui sopra prestati da imprese di vigilanza non vi sia una concorrenza tra Stati membri e che la misura non incida sugli scambi e sulla concorrenza. |
| --- | --- |

23)

Analogamente la Commissione ritiene che la misura di cui al comma 2 sembra falsare la concorrenza ed incidere sugli scambi tra gli Stati membri. Sebbene, nelle informazioni trasmesse, le autorità italiane sostengano che di norma i servizi di vigilanza non sono prestati al di fuori del territorio nel quale le imprese di vigilanza sono stabilite e che queste imprese devono ottenere una particolare licenza per esercitare le loro attività, la Commissione considera che, in questa fase del procedimento, le autorità italiane non hanno fornito informazioni sufficienti per dimostrare che per i quattro servizi di cui sopra prestati da imprese di vigilanza non vi sia una concorrenza tra Stati membri e che la misura non incida sugli scambi e sulla concorrenza.

Presenza di risorse statali

| 24) | La misura implica l'uso di risorse statali nella forma di una perdita di gettito fiscale da parte della Regione Sicilia; tale perdita è pari all'importo della riduzione delle imposte dovute dalle imprese beneficiarie di cui ai punti precedenti. |
| --- | --- |

24)

La misura implica l'uso di risorse statali nella forma di una perdita di gettito fiscale da parte della Regione Sicilia; tale perdita è pari all'importo della riduzione delle imposte dovute dalle imprese beneficiarie di cui ai punti precedenti.

Compatibilità

| 25) | La Commissione nutre dubbi sul fatto che l'aiuto di Stato sia compatibile con il mercato unico. Le autorità italiane hanno presentato alcuni argomenti volti a dimostrare che, nel caso di specie, si applicherebbe la deroga di cui all'articolo 87, paragrafo 3, lettera a), del trattato CE, per effetto della quale gli aiuti di Stato al funzionamento possono essere considerati compatibili con il mercato comune, essendo la Sicilia una regione ammissibile a tale deroga. Le autorità italiane non hanno tuttavia presentato alcun argomento volto a dimostrare che altre deroghe sarebbero applicabili al caso in oggetto. |
| --- | --- |

25)

La Commissione nutre dubbi sul fatto che l'aiuto di Stato sia compatibile con il mercato unico. Le autorità italiane hanno presentato alcuni argomenti volti a dimostrare che, nel caso di specie, si applicherebbe la deroga di cui all'articolo 87, paragrafo 3, lettera a), del trattato CE, per effetto della quale gli aiuti di Stato al funzionamento possono essere considerati compatibili con il mercato comune, essendo la Sicilia una regione ammissibile a tale deroga. Le autorità italiane non hanno tuttavia presentato alcun argomento volto a dimostrare che altre deroghe sarebbero applicabili al caso in oggetto.

| 26) | Le deroghe previste dall'articolo 87, paragrafo 2, del trattato CE, relative agli aiuti di carattere sociale concessi ai singoli consumatori, agli aiuti destinati a ovviare ai danni arrecati dalle calamità naturali oppure da altri eventi eccezionali e agli aiuti concessi all'economia di determinate regioni della Repubblica federale di Germania, non sembrano applicarsi in questo caso. |
| --- | --- |

26)

Le deroghe previste dall'articolo 87, paragrafo 2, del trattato CE, relative agli aiuti di carattere sociale concessi ai singoli consumatori, agli aiuti destinati a ovviare ai danni arrecati dalle calamità naturali oppure da altri eventi eccezionali e agli aiuti concessi all'economia di determinate regioni della Repubblica federale di Germania, non sembrano applicarsi in questo caso.

| 27) | Analogamente, non sembra possibile considerare che il regime sia destinato a promuovere un progetto di comune interesse europeo o a porre rimedio a un grave turbamento dell'economia dell'Italia, come previsto dall'articolo 87, paragrafo 3, lettera b), del trattato CE. Il regime non è neanche destinato a promuovere la cultura e la conservazione del patrimonio, come previsto dall'articolo 87, paragrafo 3, lettera d), del trattato CE. |
| --- | --- |

27)

Analogamente, non sembra possibile considerare che il regime sia destinato a promuovere un progetto di comune interesse europeo o a porre rimedio a un grave turbamento dell'economia dell'Italia, come previsto dall'articolo 87, paragrafo 3, lettera b), del trattato CE. Il regime non è neanche destinato a promuovere la cultura e la conservazione del patrimonio, come previsto dall'articolo 87, paragrafo 3, lettera d), del trattato CE.

| 28) | Il regime in oggetto deve inoltre essere esaminato alla luce dell'articolo 87, paragrafo 3, lettera c), del trattato CE. Tale articolo dispone che gli aiuti destinati ad agevolare lo sviluppo di talune attività o di talune regioni economiche sono ammessi sempre che non alterino le condizioni degli scambi in misura contraria al comune interesse. La Commissione osserva che le agevolazioni fiscali concesse mediante il regime non sono legate ad investimenti specifici, alla creazione di posti di lavoro o a progetti specifici. Il regime prevede semplicemente una riduzione degli oneri che dovrebbero essere sostenuti normalmente dalle imprese interessate nel corso della loro attività — nella fattispecie il debito IRAP — e deve pertanto essere considerato come un aiuto di Stato al funzionamento, come viene peraltro correttamente riconosciuto dalle autorità italiane nella corrispondenza intercorsa. Anche qualora si constatasse che la misura contribuisce allo sviluppo di determinate attività economiche, conformemente alla sua prassi costante, la Commissione non è in grado di escludere che la sua incidenza sugli scambi intracomunitari possa essere contraria al comune interesse; il regime non prevede del resto che i beneficiari siano tenuti a compensare tali distorsioni. |
| --- | --- |

28)

Il regime in oggetto deve inoltre essere esaminato alla luce dell'articolo 87, paragrafo 3, lettera c), del trattato CE. Tale articolo dispone che gli aiuti destinati ad agevolare lo sviluppo di talune attività o di talune regioni economiche sono ammessi sempre che non alterino le condizioni degli scambi in misura contraria al comune interesse. La Commissione osserva che le agevolazioni fiscali concesse mediante il regime non sono legate ad investimenti specifici, alla creazione di posti di lavoro o a progetti specifici. Il regime prevede semplicemente una riduzione degli oneri che dovrebbero essere sostenuti normalmente dalle imprese interessate nel corso della loro attività — nella fattispecie il debito IRAP — e deve pertanto essere considerato come un aiuto di Stato al funzionamento, come viene peraltro correttamente riconosciuto dalle autorità italiane nella corrispondenza intercorsa. Anche qualora si constatasse che la misura contribuisce allo sviluppo di determinate attività economiche, conformemente alla sua prassi costante, la Commissione non è in grado di escludere che la sua incidenza sugli scambi intracomunitari possa essere contraria al comune interesse; il regime non prevede del resto che i beneficiari siano tenuti a compensare tali distorsioni.

| 29) | Occorre infine esaminare se l'aiuto sia ammissibile alla deroga di cui all'articolo 87, paragrafo 3, lettera a), del trattato CE, che prevede l'autorizzazione degli aiuti destinati a favorire lo sviluppo economico delle regioni ove il tenore di vita sia anormalmente basso oppure si abbia una grave forma di sottoccupazione. |
| --- | --- |

29)

Occorre infine esaminare se l'aiuto sia ammissibile alla deroga di cui all'articolo 87, paragrafo 3, lettera a), del trattato CE, che prevede l'autorizzazione degli aiuti destinati a favorire lo sviluppo economico delle regioni ove il tenore di vita sia anormalmente basso oppure si abbia una grave forma di sottoccupazione.

| 30) | Come già menzionato, le autorità italiane affermano nella loro corrispondenza che la misura in questione costituisce un aiuto al funzionamento. In base ad una prassi consolidata della Commissione, gli aiuti al funzionamento sono di norma vietati. In via eccezionale, però, possono essere concessi aiuti di questo tipo purché i) siano giustificati in funzione del loro contributo allo sviluppo regionale e della loro natura e ii) il loro livello sia proporzionale agli svantaggi che intendono compensare. Spetta allo Stato membro dimostrare l'esistenza degli svantaggi e quantificarne l'importanza (9). |
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30)

Come già menzionato, le autorità italiane affermano nella loro corrispondenza che la misura in questione costituisce un aiuto al funzionamento. In base ad una prassi consolidata della Commissione, gli aiuti al funzionamento sono di norma vietati. In via eccezionale, però, possono essere concessi aiuti di questo tipo purché i) siano giustificati in funzione del loro contributo allo sviluppo regionale e della loro natura e ii) il loro livello sia proporzionale agli svantaggi che intendono compensare. Spetta allo Stato membro dimostrare l'esistenza degli svantaggi e quantificarne l'importanza (9).

| 31) | Nelle loro osservazioni le autorità italiane hanno argomentato che la misura in questione, che concede un aiuto al funzionamento, sarebbe compatibile con il mercato comune per le ragioni illustrate in appresso. |
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31)

Nelle loro osservazioni le autorità italiane hanno argomentato che la misura in questione, che concede un aiuto al funzionamento, sarebbe compatibile con il mercato comune per le ragioni illustrate in appresso.

Comma 1

| i) | Il comma 1 contribuirebbe alla creazione di nuove imprese e alla riduzione del gap esistente tra imprese allocate in Sicilia e imprese operanti in altre regioni italiane; |
| --- | --- |

i)

Il comma 1 contribuirebbe alla creazione di nuove imprese e alla riduzione del gap esistente tra imprese allocate in Sicilia e imprese operanti in altre regioni italiane;

| ii) | le imprese siciliane sarebbero strutturalmente svantaggiate perché la Sicilia è una regione insulare ed ultraperiferica, collocata a grande distanza dai centri economici continentali. Inoltre la prevalenza di micro-imprese determinerebbe costi di finanziamento più elevati ed un maggior impiego di risorse umane. Giacché il costo del lavoro e il costo dell'indebitamento costituirebbero gran parte della base imponibile dell'IRAP, le imprese siciliane sarebbero penalizzate; |
| --- | --- |

ii)

le imprese siciliane sarebbero strutturalmente svantaggiate perché la Sicilia è una regione insulare ed ultraperiferica, collocata a grande distanza dai centri economici continentali. Inoltre la prevalenza di micro-imprese determinerebbe costi di finanziamento più elevati ed un maggior impiego di risorse umane. Giacché il costo del lavoro e il costo dell'indebitamento costituirebbero gran parte della base imponibile dell'IRAP, le imprese siciliane sarebbero penalizzate;

| iii) | l'aiuto è limitato nel tempo, ha carattere decrescente ed è proporzionale allo svantaggio che è inteso a compensare. L'argomento avanzato dalle autorità italiane è che la “normale” impresa siciliana, con un fatturato inferiore ai 10 milioni di EUR e meno di dieci dipendenti, operante nel settore industriale, con esclusione delle aziende chimiche e petrolchimiche, nel settore dell'ITC e in quello turistico/alberghiero versi un'imposta IRAP più elevata della “normale” impresa lombarda con caratteristiche comparabili. |
| --- | --- |

iii)

l'aiuto è limitato nel tempo, ha carattere decrescente ed è proporzionale allo svantaggio che è inteso a compensare. L'argomento avanzato dalle autorità italiane è che la “normale” impresa siciliana, con un fatturato inferiore ai 10 milioni di EUR e meno di dieci dipendenti, operante nel settore industriale, con esclusione delle aziende chimiche e petrolchimiche, nel settore dell'ITC e in quello turistico/alberghiero versi un'imposta IRAP più elevata della “normale” impresa lombarda con caratteristiche comparabili.

Comma 2

| i) | Il comma 2 contribuirebbe ad aumentare le prospettive di investimento in Sicilia attraverso il miglioramento degli standard di sicurezza e la prevenzione del crimine; |
| --- | --- |

i)

Il comma 2 contribuirebbe ad aumentare le prospettive di investimento in Sicilia attraverso il miglioramento degli standard di sicurezza e la prevenzione del crimine;

| ii) | il rapporto tra costo del lavoro e valore della produzione netta per le imprese di vigilanza siciliane è in media superiore a quello delle imprese operanti in altre regioni italiane. Ciò è dovuto alla rigidità del mercato del lavoro siciliano, caratterizzato da un basso turnover dei dipendenti. Si dovrebbero inoltre prendere in considerazione gli effetti dei vincoli tariffari che il prefetto può imporre per i servizi del settore (cosiddette “tariffe di legalità”) e la necessità di remunerare la professionalità dei dipendenti del settore. |
| --- | --- |

ii)

il rapporto tra costo del lavoro e valore della produzione netta per le imprese di vigilanza siciliane è in media superiore a quello delle imprese operanti in altre regioni italiane. Ciò è dovuto alla rigidità del mercato del lavoro siciliano, caratterizzato da un basso turnover dei dipendenti. Si dovrebbero inoltre prendere in considerazione gli effetti dei vincoli tariffari che il prefetto può imporre per i servizi del settore (cosiddette “tariffe di legalità”) e la necessità di remunerare la professionalità dei dipendenti del settore.

| iii) | l'aiuto è limitato nel tempo, ha carattere decrescente ed è proporzionale allo svantaggio che è inteso a compensare. L'argomento avanzato dalle autorità italiane è che la normale impresa di servizi di vigilanza siciliana versi un'imposta IRAP più elevata rispetto ad una normale impresa operante in altre regioni italiane. |
| --- | --- |

iii)

l'aiuto è limitato nel tempo, ha carattere decrescente ed è proporzionale allo svantaggio che è inteso a compensare. L'argomento avanzato dalle autorità italiane è che la normale impresa di servizi di vigilanza siciliana versi un'imposta IRAP più elevata rispetto ad una normale impresa operante in altre regioni italiane.

| 32) | Sotto questo profilo, la Commissione osserva che per regioni ultraperiferiche si intendono quelle individuate in un elenco esaustivo di cui alla dichiarazione 26 sulle regioni ultraperiferiche della Comunità, allegata al trattato sull'Unione europea (10), ovvero i dipartimenti francesi d'oltremare, le Azzorre, Madeira e le Isole Canarie. La Sicilia non può essere considerata una regione ultraperiferica. Tuttavia è una regione ammissibile agli aiuti di Stato a norma dell'articolo 87, paragrafo 3, lettera a) del trattato. |
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32)

Sotto questo profilo, la Commissione osserva che per regioni ultraperiferiche si intendono quelle individuate in un elenco esaustivo di cui alla dichiarazione 26 sulle regioni ultraperiferiche della Comunità, allegata al trattato sull'Unione europea (10), ovvero i dipartimenti francesi d'oltremare, le Azzorre, Madeira e le Isole Canarie. La Sicilia non può essere considerata una regione ultraperiferica. Tuttavia è una regione ammissibile agli aiuti di Stato a norma dell'articolo 87, paragrafo 3, lettera a) del trattato.

| 33) | In secondo luogo, la Commissione osserva quanto segue: |
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33)

In secondo luogo, la Commissione osserva quanto segue:

Comma 1

| i) | Il collegamento tra l'abbattimento dell'IRAP per tutte le cooperative e la creazione di nuove imprese in Sicilia non è chiaro e le autorità italiane non hanno apportato alcuna spiegazione sotto questo profilo; |
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i)

Il collegamento tra l'abbattimento dell'IRAP per tutte le cooperative e la creazione di nuove imprese in Sicilia non è chiaro e le autorità italiane non hanno apportato alcuna spiegazione sotto questo profilo;

| ii) | per quanto riguarda l'argomento addotto dalle autorità italiane, in base al quale l'economia siciliana sarebbe penalizzata dalla prevalenza di microimprese e dalle conseguenze che ne derivano, una riduzione dell'IRAP generalizzata per le cooperative di qualsiasi dimensione non sembra risolvere il problema, non essendo essa mirata alle microimprese. Né l'aiuto dovrebbe essere concesso solo alle microcooperative. In secondo luogo, l'aiuto non sembra volto a rimediare ai problemi collegati al carattere insulare della Sicilia, in quanto non presenta alcun rapporto con i costi supplementari legati all'insularità, come i costi di trasporto. Infine, differenze tra le aliquote fiscali effettive, quali quelle rilevate dalle autorità italiane, sembrano verificarsi per tutte le imposte ed essere implicite nella loro natura. Ciò non sembra tuttavia costituire una ragione sufficiente per concedere aiuti di Stato differenziati per tipologie di imprese e, nel caso in esame, le autorità italiane non hanno fornito prove concrete del fatto che le cooperative siano eccessivamente penalizzate da aliquote IRAP effettive elevate; |
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ii)

per quanto riguarda l'argomento addotto dalle autorità italiane, in base al quale l'economia siciliana sarebbe penalizzata dalla prevalenza di microimprese e dalle conseguenze che ne derivano, una riduzione dell'IRAP generalizzata per le cooperative di qualsiasi dimensione non sembra risolvere il problema, non essendo essa mirata alle microimprese. Né l'aiuto dovrebbe essere concesso solo alle microcooperative. In secondo luogo, l'aiuto non sembra volto a rimediare ai problemi collegati al carattere insulare della Sicilia, in quanto non presenta alcun rapporto con i costi supplementari legati all'insularità, come i costi di trasporto. Infine, differenze tra le aliquote fiscali effettive, quali quelle rilevate dalle autorità italiane, sembrano verificarsi per tutte le imposte ed essere implicite nella loro natura. Ciò non sembra tuttavia costituire una ragione sufficiente per concedere aiuti di Stato differenziati per tipologie di imprese e, nel caso in esame, le autorità italiane non hanno fornito prove concrete del fatto che le cooperative siano eccessivamente penalizzate da aliquote IRAP effettive elevate;

| iii) | ad ogni modo, poiché il comma 1 conferisce aiuti a cooperative di qualsiasi dimensione e settore, l'uso di dati riguardanti solo le imprese con un fatturato inferiore ai 10 milioni di EUR e meno di dieci dipendenti operanti nel settore industriale, con esclusione delle aziende chimiche e petrolchimiche, nel settore dell'ITC e in quello turistico/alberghiero non sembrano poter dimostrare la proporzionalità della misura in questione. |
| --- | --- |

iii)

ad ogni modo, poiché il comma 1 conferisce aiuti a cooperative di qualsiasi dimensione e settore, l'uso di dati riguardanti solo le imprese con un fatturato inferiore ai 10 milioni di EUR e meno di dieci dipendenti operanti nel settore industriale, con esclusione delle aziende chimiche e petrolchimiche, nel settore dell'ITC e in quello turistico/alberghiero non sembrano poter dimostrare la proporzionalità della misura in questione.

Comma 2

| i) | Il legame tra il comma 2 e l'aumento delle prospettive di investimento in Sicilia attraverso il miglioramento degli standard di sicurezza non è chiaro e le autorità italiane non hanno apportato alcuna spiegazione sotto questo profilo; |
| --- | --- |

i)

Il legame tra il comma 2 e l'aumento delle prospettive di investimento in Sicilia attraverso il miglioramento degli standard di sicurezza non è chiaro e le autorità italiane non hanno apportato alcuna spiegazione sotto questo profilo;

| ii) | gli argomenti relativi alla pertinenza dello svantaggio ed alle aliquote fiscali effettive, illustrati al precedente punto ii), valgono, mutatis mutandis, anche per il comma 2. Inoltre, le ragioni del costo del lavoro più elevato per le imprese di servizi di vigilanza siciliane rispetto alle imprese operanti in altre regioni italiane non sono sufficientemente spiegate. Il mercato del lavoro siciliano non sembra presentare caratteristiche tali, rispetto al mercato del lavoro di altre regioni, da giustificare salari più elevati in questo settore. Le autorità italiane non chiariscono del resto neanche l'incidenza delle differenze relative alle “tariffe di legalità” sull'aumento del costo del lavoro in Sicilia. |
| --- | --- |

ii)

gli argomenti relativi alla pertinenza dello svantaggio ed alle aliquote fiscali effettive, illustrati al precedente punto ii), valgono, mutatis mutandis, anche per il comma 2. Inoltre, le ragioni del costo del lavoro più elevato per le imprese di servizi di vigilanza siciliane rispetto alle imprese operanti in altre regioni italiane non sono sufficientemente spiegate. Il mercato del lavoro siciliano non sembra presentare caratteristiche tali, rispetto al mercato del lavoro di altre regioni, da giustificare salari più elevati in questo settore. Le autorità italiane non chiariscono del resto neanche l'incidenza delle differenze relative alle “tariffe di legalità” sull'aumento del costo del lavoro in Sicilia.

| 34) | Pertanto, in questa fase del procedimento, la Commissione nutre dubbi sul fatto che lo Stato membro abbia dimostrato l'esistenza di uno svantaggio pertinente e che ne abbia quantificato l'importanza. In ogni caso la Commissione osserva che le informazioni presentate non le consentono, in questa fase del procedimento, di verificare se l'aiuto in questione sia giustificato dal contributo fornito allo sviluppo regionale e se l'entità dell'aiuto sia proporzionale agli svantaggi che esso intende compensare. |
| --- | --- |

34)

Pertanto, in questa fase del procedimento, la Commissione nutre dubbi sul fatto che lo Stato membro abbia dimostrato l'esistenza di uno svantaggio pertinente e che ne abbia quantificato l'importanza. In ogni caso la Commissione osserva che le informazioni presentate non le consentono, in questa fase del procedimento, di verificare se l'aiuto in questione sia giustificato dal contributo fornito allo sviluppo regionale e se l'entità dell'aiuto sia proporzionale agli svantaggi che esso intende compensare.

| 35) | Visto che la misura, nella sua qualità di aiuto, non risulta, allo stato attuale, ammissibile ad alcuna delle deroghe previste dal trattato, nel contesto della sua valutazione preliminare, quale prevista dall'articolo 6 del regolamento (CE) n. 659/1999 del Consiglio del 22 marzo 1999 recante modalità di applicazione dell'articolo 93 (attuale 88) del trattato CE, la Commissione nutre dei dubbi sulla sua compatibilità con il mercato comune. |
| --- | --- |

35)

Visto che la misura, nella sua qualità di aiuto, non risulta, allo stato attuale, ammissibile ad alcuna delle deroghe previste dal trattato, nel contesto della sua valutazione preliminare, quale prevista dall'articolo 6 del regolamento (CE) n. 659/1999 del Consiglio del 22 marzo 1999 recante modalità di applicazione dell'articolo 93 (attuale 88) del trattato CE, la Commissione nutre dei dubbi sulla sua compatibilità con il mercato comune.

3.   CONCLUSIONE

| 36) | Tenuto conto di quanto precede, la Commissione invita l'Italia a presentare, nell'ambito della procedura di cui all'articolo 88, paragrafo 2 del trattato CE, le proprie osservazioni e a fornire tutte le informazioni utili ai fini della valutazione della misura, entro un mese dalla data di ricezione della presente. |
| --- | --- |

36)

Tenuto conto di quanto precede, la Commissione invita l'Italia a presentare, nell'ambito della procedura di cui all'articolo 88, paragrafo 2 del trattato CE, le proprie osservazioni e a fornire tutte le informazioni utili ai fini della valutazione della misura, entro un mese dalla data di ricezione della presente.

| 37) | La Commissione comunica all'Italia che informerà gli interessati attraverso la pubblicazione della presente lettera e di una sintesi della stessa nella Gazzetta ufficiale dell'Unione europea. Informerà inoltre gli interessati nei paesi EFTA firmatari dell'accordo SEE attraverso la pubblicazione di un avviso nel supplemento SEE della Gazzetta ufficiale dell'Unione europea ed informerà infine l'Autorità di vigilanza EFTA inviandole copia della presente. Tutti gli interessati anzidetti saranno invitati a trasmetterle le loro osservazioni entro il termine di un mese a decorrere dalla data di detta pubblicazione.’ |
| --- | --- |

37)

La Commissione comunica all'Italia che informerà gli interessati attraverso la pubblicazione della presente lettera e di una sintesi della stessa nella Gazzetta ufficiale dell'Unione europea. Informerà inoltre gli interessati nei paesi EFTA firmatari dell'accordo SEE attraverso la pubblicazione di un avviso nel supplemento SEE della Gazzetta ufficiale dell'Unione europea ed informerà infine l'Autorità di vigilanza EFTA inviandole copia della presente. Tutti gli interessati anzidetti saranno invitati a trasmetterle le loro osservazioni entro il termine di un mese a decorrere dalla data di detta pubblicazione.’

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(1)  Regolamento (CE) n. 69/2001 della Commissione, del 12 gennaio 2001, relativo all'applicazione degli articoli 87 e 88 del trattato CE agli aiuti d'importanza minore (“de minimis”), GU L 10 del 13.1.2001, pag. 1.

1

(2)  Titolo VI del Libro V del Codice Civile, così come modificato dall'articolo 8 del decreto legislativo 17 gennaio 2003, n. 6.

2

Titolo VI del Libro V del Codice Civile

(3)  Titolo IV del Regio decreto 18 giugno 1931, n. 773 e successive modifiche e integrazioni. Il prefetto può negare la licenza anche in considerazione del numero o della importanza degli istituti già esistenti.

3

Titolo IV

(4)  Regole speciali disciplinano la determinazione della base imponibile per le banche, le imprese di assicurazioni, i lavoratori autonomi, le autorità pubbliche e imprese private non commerciali.

4

(5)  Causa C-475/03.

5

(6)  Comunicazione della Commissione sull'applicazione delle norme relative agli aiuti di Stato alle misure di tassazione diretta delle imprese (GU C 384 del 10.12.1998, pag. 3, punto 25).

6

(7)  Cfr. ad esempio la causa C-143/99 Adria-Wien Pipeline GmbH e Wietersdorfer & Peggauer Zementwerke GmbH/Finanzlandesdirektion für Kärnten, Racc. 2001, pag. I-8365, riguardante un rimborso alle sole imprese produttrici di beni materiali.

7

Adria-Wien Pipeline GmbH e Wietersdorfer & Peggauer Zementwerke GmbH/Finanzlandesdirektion für Kärnten

(8)  Causa T-214/95 Het Vlaamse Gewest/Commissione, Racc. 1998, pag. II-717.

8

Het Vlaamse Gewest/Commissione

(9)  Orientamenti in materia di aiuti di Stato a finalità regionale, GU C 74 del 10.3.1998, pag. 9.

9

(10)  Cfr. nota 27 degli Orientamenti in materia di aiuti di Stato a finalità regionale citati.

10

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