# Official Journal C 74/2008

| | ISSN 1725-2423 |
| --- | --- |
| Official Journal
  of the European Union | C 74 |
| | |
| English edition | Information and Notices | Volume 5120 March 2008 |

ISSN 1725-2423

Official Journal

of the European Union

C 74

English edition

Information and Notices

Volume 5120 March 2008

---

| Notice No | Contents | page |
| --- | --- | --- |
| | I   Resolutions, recommendations and opinions |
| | OPINIONS |
| | Council |
| 2008/C 074/01 | Council opinion of 4 March 2008 on the updated stability programme of Austria, 2007-2010 | 1 |
| 2008/C 074/02 | Council opinion of 4 March 2008 on the updated stability programme of Slovenia, 2007-2010 | 5 |
| 2008/C 074/03 | Council opinion of 4 March 2008 on the updated stability programme of Ireland, 2007-2010 | 10 |
| 2008/C 074/04 | Council opinion of 4 March 2008 on the updated convergence programme of Denmark, 2007-2010 | 15 |
| 2008/C 074/05 | Council opinion of 4 March 2008 on the updated convergence programme of Lithuania, 2007-2010 | 19 |
| 2008/C 074/06 | Council opinion of 4 March 2008 on the updated convergence programme of the Czech Republic, 2007-2010 | 24 |
| 2008/C 074/07 | Council opinion of 4 March 2008 on the stability programme of Malta, 2007-2010 | 28 |
| 2008/C 074/08 | Council opinion of 4 March 2008 on the updated stability programme of Greece, 2007-2010 | 33 |

Notice No

Contents

page

I   Resolutions, recommendations and opinions

OPINIONS

Council

2008/C 074/01

Council opinion of 4 March 2008 on the updated stability programme of Austria, 2007-2010

1

2008/C 074/02

Council opinion of 4 March 2008 on the updated stability programme of Slovenia, 2007-2010

5

2008/C 074/03

Council opinion of 4 March 2008 on the updated stability programme of Ireland, 2007-2010

10

2008/C 074/04

Council opinion of 4 March 2008 on the updated convergence programme of Denmark, 2007-2010

15

2008/C 074/05

Council opinion of 4 March 2008 on the updated convergence programme of Lithuania, 2007-2010

19

2008/C 074/06

Council opinion of 4 March 2008 on the updated convergence programme of the Czech Republic, 2007-2010

24

2008/C 074/07

Council opinion of 4 March 2008 on the stability programme of Malta, 2007-2010

28

2008/C 074/08

Council opinion of 4 March 2008 on the updated stability programme of Greece, 2007-2010

33

| | II   Information |
| --- | --- |
| | INFORMATION FROM EUROPEAN UNION INSTITUTIONS AND BODIES |
| | Commission |
| 2008/C 074/09 | Non-opposition to a notified concentration (Case COMP/M.4687 — SACYR VALLEHERMOSO/Eiffage) (
  1
  ) | 38 |
| 2008/C 074/10 | Non-opposition to a notified concentration (Case COMP/M.5034 — Montagu/GIP/Biffa) (
  1
  ) | 38 |

II   Information

INFORMATION FROM EUROPEAN UNION INSTITUTIONS AND BODIES

Commission

2008/C 074/09

Non-opposition to a notified concentration (Case COMP/M.4687 — SACYR VALLEHERMOSO/Eiffage) (
  1
  )

1

38

2008/C 074/10

Non-opposition to a notified concentration (Case COMP/M.5034 — Montagu/GIP/Biffa) (
  1
  )

1

38

| | IV   Notices |
| --- | --- |
| | NOTICES FROM EUROPEAN UNION INSTITUTIONS AND BODIES |
| | Commission |
| 2008/C 074/11 | Euro exchange rates | 39 |
| | NOTICES FROM MEMBER STATES |
| 2008/C 074/12 | Information pursuant to Council Regulation (EC) No 539/2001 listing the third countries whose nationals must be in possession of visas when crossing the external borders and those whose nationals are exempt from that requirement | 40 |

IV   Notices

NOTICES FROM EUROPEAN UNION INSTITUTIONS AND BODIES

Commission

2008/C 074/11

Euro exchange rates

39

NOTICES FROM MEMBER STATES

2008/C 074/12

Information pursuant to Council Regulation (EC) No 539/2001 listing the third countries whose nationals must be in possession of visas when crossing the external borders and those whose nationals are exempt from that requirement

40

| | V   Announcements |
| --- | --- |
| | ADMINISTRATIVE PROCEDURES |
| | Commission |
| 2008/C 074/13 | Call for proposals for indirect actions under the multiannual Community Programme to make digital content in Europe more accessible, usable and exploitable (The eContentplus Programme) (
  1
  ) | 62 |
| 2008/C 074/14 | Call for proposals under the work programmes of the 7th EC Framework Programme for Research, Technological Development and Demonstration Activities | 64 |
| | COURT PROCEEDINGS |
| | European Economic AreaEFTA Court |
| 2008/C 074/15 | Request for an Advisory Opinion from the EFTA Court by Oslo tingrett dated 26 November 2007 in the Case of L'Oréal Norge AS v Smart Club Norge AS (Case E-10/07) | 65 |
| | PROCEDURES RELATING TO THE IMPLEMENTATION OF THE COMMON COMMERCIAL POLICY |
| | Commission |
| 2008/C 074/16 | Notice of initiation of a partial interim review of the anti-dumping measures applicable to imports of certain castings originating in the People's Republic of China | 66 |
| | PROCEDURES RELATING TO THE IMPLEMENTATION OF THE COMPETITION POLICY |
| | Commission |
| 2008/C 074/17 | Prior notification of a concentration (Case COMP/M.5032 — Roxel/Protac) (
  1
  ) | 68 |
| 2008/C 074/18 | Prior notification of a concentration (Case COMP/M.4919 — StatoilHydro/ConocoPhillips (Jet)) (
  1
  ) | 69 |
| 2008/C 074/19 | Prior notification of a concentration (Case COMP/M.5104 — Altor Fund II/Papyrus) — Candidate case for simplified procedure (
  1
  ) | 70 |
| 2008/C 074/20 | Prior notification of a concentration (Case COMP/M.5077 — Colony Capital/Morgan Stanley/Colfilm) — Candidate case for simplified procedure (
  1
  ) | 71 |
| | OTHER ACTS |
| | Commission |
| 2008/C 074/21 | Publication of an application pursuant to Article 6(2) of Council Regulation (EC) No 510/2006 on the protection of geographical indications and designations of origin for agricultural products and foodstuffs | 72 |

V   Announcements

ADMINISTRATIVE PROCEDURES

Commission

2008/C 074/13

Call for proposals for indirect actions under the multiannual Community Programme to make digital content in Europe more accessible, usable and exploitable (The eContentplus Programme) (
  1
  )

e

plus

1

62

2008/C 074/14

Call for proposals under the work programmes of the 7th EC Framework Programme for Research, Technological Development and Demonstration Activities

64

COURT PROCEEDINGS

European Economic AreaEFTA Court

2008/C 074/15

Request for an Advisory Opinion from the EFTA Court by Oslo tingrett dated 26 November 2007 in the Case of L'Oréal Norge AS v Smart Club Norge AS (Case E-10/07)

65

PROCEDURES RELATING TO THE IMPLEMENTATION OF THE COMMON COMMERCIAL POLICY

Commission

2008/C 074/16

Notice of initiation of a partial interim review of the anti-dumping measures applicable to imports of certain castings originating in the People's Republic of China

66

PROCEDURES RELATING TO THE IMPLEMENTATION OF THE COMPETITION POLICY

Commission

2008/C 074/17

Prior notification of a concentration (Case COMP/M.5032 — Roxel/Protac) (
  1
  )

1

68

2008/C 074/18

Prior notification of a concentration (Case COMP/M.4919 — StatoilHydro/ConocoPhillips (Jet)) (
  1
  )

1

69

2008/C 074/19

Prior notification of a concentration (Case COMP/M.5104 — Altor Fund II/Papyrus) — Candidate case for simplified procedure (
  1
  )

1

70

2008/C 074/20

Prior notification of a concentration (Case COMP/M.5077 — Colony Capital/Morgan Stanley/Colfilm) — Candidate case for simplified procedure (
  1
  )

1

71

OTHER ACTS

Commission

2008/C 074/21

Publication of an application pursuant to Article 6(2) of Council Regulation (EC) No 510/2006 on the protection of geographical indications and designations of origin for agricultural products and foodstuffs

72

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

---

(1)   Text with EEA relevance

1

| EN | |
| --- | --- |

EN

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I Resolutions, recommendations and opinions

OPINIONS

Council

| 20.3.2008 | EN | Official Journal of the European Union | C 74/1 |
| --- | --- | --- | --- |

20.3.2008

EN

Official Journal of the European Union

C 74/1

---

COUNCIL OPINION

of 4 March 2008

on the updated stability programme of Austria, 2007-2010

(2008/C 74/01)

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 4 March 2008, the Council examined the updated stability programme of Austria, which covers the period 2007 to 2010. |
| --- | --- |

(1)

On 4 March 2008, the Council examined the updated stability programme of Austria, which covers the period 2007 to 2010.

| (2) | Over the last few years, Austria has experienced robust economic growth, surpassing that of other euro area countries on average. With private consumption being sluggish, the main contributions to growth came from net exports and investment. Continued wage moderation helped to maintain price stability while boosting external competitiveness.
  The Austrian labour market has been performing well, with the unemployment rate being one of the lowest in the EU and the overall employment rate higher than the 70 % targeted by the Lisbon strategy. However, the employment rate of older workers remains well below the EU average. With public debt in excess of 60 % of GDP, the general government deficit has been declining since 2005, but the achievement of a balanced budget has been repeatedly postponed. Lasting consolidation of public finances will hinge also on an overhaul of fiscal relations between different government levels as the present ones are overly complicated and lack transparency. |
| --- | --- |

(2)

Over the last few years, Austria has experienced robust economic growth, surpassing that of other euro area countries on average. With private consumption being sluggish, the main contributions to growth came from net exports and investment. Continued wage moderation helped to maintain price stability while boosting external competitiveness.

The Austrian labour market has been performing well, with the unemployment rate being one of the lowest in the EU and the overall employment rate higher than the 70 % targeted by the Lisbon strategy. However, the employment rate of older workers remains well below the EU average. With public debt in excess of 60 % of GDP, the general government deficit has been declining since 2005, but the achievement of a balanced budget has been repeatedly postponed. Lasting consolidation of public finances will hinge also on an overhaul of fiscal relations between different government levels as the present ones are overly complicated and lack transparency.

| (3) | The macroeconomic scenario underlying the programme envisages that real GDP growth will decelerate from 3,4 % in 2007 to 2,5 % on average over the rest of the programme period. Assessed against currently available information (2), this scenario appears to be based on plausible growth assumptions. Given the latest developments in food and oil prices, inflation could turn out somewhat higher than projected in the programme, but the continued wage moderation should contribute towards maintaining high degree of competitiveness. |
| --- | --- |

(3)

The macroeconomic scenario underlying the programme envisages that real GDP growth will decelerate from 3,4 % in 2007 to 2,5 % on average over the rest of the programme period. Assessed against currently available information (2), this scenario appears to be based on plausible growth assumptions. Given the latest developments in food and oil prices, inflation could turn out somewhat higher than projected in the programme, but the continued wage moderation should contribute towards maintaining high degree of competitiveness.

| (4) | For 2007, the general government deficit is estimated at 0,7 % of GDP in the most recent update of the stability programme, against a target of 0,9 % of GDP set in the previous update. This improvement over the target results mainly from the better-than-expected cyclical developments, with revenue exceeding the budgetary plans and offsetting slightly higher-than-planned expenditure growth. In particular, proceeds from wage and corporate tax as well as capital yields taxes gave rise to the higher-than-planned revenue. The Council notes that, overall, budgetary implementation in 2007 could be considered broadly consistent also with the April 2007 Eurogroup orientations for budgetary policies. |
| --- | --- |

(4)

For 2007, the general government deficit is estimated at 0,7 % of GDP in the most recent update of the stability programme, against a target of 0,9 % of GDP set in the previous update. This improvement over the target results mainly from the better-than-expected cyclical developments, with revenue exceeding the budgetary plans and offsetting slightly higher-than-planned expenditure growth. In particular, proceeds from wage and corporate tax as well as capital yields taxes gave rise to the higher-than-planned revenue. The Council notes that, overall, budgetary implementation in 2007 could be considered broadly consistent also with the April 2007 Eurogroup orientations for budgetary policies.

| (5) | The main goal of the medium-term budgetary strategy is to reach the medium-term objective (MTO) — a balanced position in structural terms (i.e. in cyclically-adjusted terms net of one-off and other temporary measures) — by 2010. The headline general government balance is planned to swing from a deficit of 0,7 % of GDP in 2007 to a 0,4 % of GDP surplus in 2010, with a back-loaded adjustment. The primary surplus is expected to improve somewhat less — by 0,9 percentage points of GDP — during the period. The structural deficit, calculated according to the commonly agreed methodology, will narrow by about 1 percentage point of GDP between 2007 and 2010 (3). The consolidation relies largely on expenditure cuts, with restraint in social spending and gains from administrative reforms being the main factors. Compared with the previous programme, which envisaged that the MTO would be nearly reached in 2009, the new update slightly backloads the planned adjustment despite a more favourable growth performance in 2007. Government gross debt, estimated at just below the 60 % of GDP Treaty reference value in 2007, is projected to further decline by 4,5 percentage points over the programme period. |
| --- | --- |

(5)

The main goal of the medium-term budgetary strategy is to reach the medium-term objective (MTO) — a balanced position in structural terms (i.e. in cyclically-adjusted terms net of one-off and other temporary measures) — by 2010. The headline general government balance is planned to swing from a deficit of 0,7 % of GDP in 2007 to a 0,4 % of GDP surplus in 2010, with a back-loaded adjustment. The primary surplus is expected to improve somewhat less — by 0,9 percentage points of GDP — during the period. The structural deficit, calculated according to the commonly agreed methodology, will narrow by about 1 percentage point of GDP between 2007 and 2010 (3). The consolidation relies largely on expenditure cuts, with restraint in social spending and gains from administrative reforms being the main factors. Compared with the previous programme, which envisaged that the MTO would be nearly reached in 2009, the new update slightly backloads the planned adjustment despite a more favourable growth performance in 2007. Government gross debt, estimated at just below the 60 % of GDP Treaty reference value in 2007, is projected to further decline by 4,5 percentage points over the programme period.

| (6) | The risks to the budgetary projections in the programme appear broadly balanced for 2008, but for 2009 and 2010 the budgetary outcomes could be worse than projected, despite plausible macroeconomic assumptions. In particular, the programme does not provide sufficient information about the measures that are necessary to underpin the significant expenditure restraint envisaged in the last two years of the programme, although savings on unemployment benefits and on pensions, as a result of the 2004 pension reform, should contribute to the decline in the expenditure ratio. It is also not clear how the expenditure targets allow for the planned additional spending on education, R & D and infrastructure over the programme period, while the expected efficiency gains in public administration remain uncertain.
  Finally, the programme announces tax cuts for 2010 without making any provision for financing them. The risks to the projected evolution of the debt ratio appear to be broadly balanced, with on the one hand potentially higher-than-targeted deficits endangering adherence to the adjustment path presented in the programme, but on the other hand, nominal GDP possibly turning out higher than foreseen. |
| --- | --- |

(6)

The risks to the budgetary projections in the programme appear broadly balanced for 2008, but for 2009 and 2010 the budgetary outcomes could be worse than projected, despite plausible macroeconomic assumptions. In particular, the programme does not provide sufficient information about the measures that are necessary to underpin the significant expenditure restraint envisaged in the last two years of the programme, although savings on unemployment benefits and on pensions, as a result of the 2004 pension reform, should contribute to the decline in the expenditure ratio. It is also not clear how the expenditure targets allow for the planned additional spending on education, R & D and infrastructure over the programme period, while the expected efficiency gains in public administration remain uncertain.

Finally, the programme announces tax cuts for 2010 without making any provision for financing them. The risks to the projected evolution of the debt ratio appear to be broadly balanced, with on the one hand potentially higher-than-targeted deficits endangering adherence to the adjustment path presented in the programme, but on the other hand, nominal GDP possibly turning out higher than foreseen.

| (7) | In view of this risk assessment, the budgetary stance in the programme may not be sufficient to ensure that the MTO is achieved by 2010, as envisaged in the programme. However, a sufficient safety margin against breaching the 3 % of GDP deficit threshold with normal macroeconomic fluctuations will be provided throughout the programme period. In 2008, the pace of adjustment towards the MTO implied by the programme is insufficient and should be strengthened significantly to be in line with the Stability and Growth Pact, which stipulates that the annual improvement in the structural balance should be higher than 0,5 % of GDP in good economic times. The Council also notes that the pace of adjustment in 2008 is also not consistent with the April 2007 Eurogroup orientations for budgetary policies. After 2008, the planned adjustment should be backed up with specific expenditure-saving measures. |
| --- | --- |

(7)

In view of this risk assessment, the budgetary stance in the programme may not be sufficient to ensure that the MTO is achieved by 2010, as envisaged in the programme. However, a sufficient safety margin against breaching the 3 % of GDP deficit threshold with normal macroeconomic fluctuations will be provided throughout the programme period. In 2008, the pace of adjustment towards the MTO implied by the programme is insufficient and should be strengthened significantly to be in line with the Stability and Growth Pact, which stipulates that the annual improvement in the structural balance should be higher than 0,5 % of GDP in good economic times. The Council also notes that the pace of adjustment in 2008 is also not consistent with the April 2007 Eurogroup orientations for budgetary policies. After 2008, the planned adjustment should be backed up with specific expenditure-saving measures.

| (8) | Austria appears to be at low risk with regard to the sustainability of public finances. The long-term budgetary impact of ageing is lower than the EU average, with pension expenditure projected to decrease as a share of GDP over the long-term. The budgetary position in 2007 as estimated in the programme, which is better than the starting position of the previous programme, contributes to easing the projected long-term budgetary impact of ageing populations. Maintaining high primary surpluses over the medium term, as planned in the programme, would further contribute to limiting risks to the sustainability of public finances. |
| --- | --- |

(8)

Austria appears to be at low risk with regard to the sustainability of public finances. The long-term budgetary impact of ageing is lower than the EU average, with pension expenditure projected to decrease as a share of GDP over the long-term. The budgetary position in 2007 as estimated in the programme, which is better than the starting position of the previous programme, contributes to easing the projected long-term budgetary impact of ageing populations. Maintaining high primary surpluses over the medium term, as planned in the programme, would further contribute to limiting risks to the sustainability of public finances.

| (9) | The stability programme is fully consistent with the October 2007 implementation report of the national reform programme. Focussing on the measures with a direct budgetary impact, both the stability programme and the implementation report provide for a shift in spending towards growth-orientated categories, such as R & D, infrastructure and education. Likewise, the implementation report contains information on the reforms of the public administration, health care system, as well as on the introduction of a new medium-term budgetary framework, all of which are key elements of the budgetary consolidation path presented in the stability programme. |
| --- | --- |

(9)

The stability programme is fully consistent with the October 2007 implementation report of the national reform programme. Focussing on the measures with a direct budgetary impact, both the stability programme and the implementation report provide for a shift in spending towards growth-orientated categories, such as R & D, infrastructure and education. Likewise, the implementation report contains information on the reforms of the public administration, health care system, as well as on the introduction of a new medium-term budgetary framework, all of which are key elements of the budgetary consolidation path presented in the stability programme.

| (10) | The budgetary strategy in the programme is only partly consistent with the country-specific broad economic policy guidelines included in the integrated guidelines and the guidelines for euro area Member States in the area of budgetary policies issued in the context of the Lisbon strategy, as the structural improvement towards the MTO does not appear to be sufficient. |
| --- | --- |

(10)

The budgetary strategy in the programme is only partly consistent with the country-specific broad economic policy guidelines included in the integrated guidelines and the guidelines for euro area Member States in the area of budgetary policies issued in the context of the Lisbon strategy, as the structural improvement towards the MTO does not appear to be sufficient.

| (11) | As regards the data requirements specified in the code of conduct for stability and convergence programmes, the programme provides all required and most of the optional data (4). |
| --- | --- |

(11)

As regards the data requirements specified in the code of conduct for stability and convergence programmes, the programme provides all required and most of the optional data (4).

The overall conclusion is that in a context of growth remaining close to its potential, the programme envisages slow progress towards the MTO through a relatively back-loaded adjustment that is based on not-fully-specified expenditure restraint. There are risks to the achievement of the budgetary targets after 2008 and the MTO might not be reached by the end of the programme period. The update makes no provision for financing the tax cuts announced for 2010. Government debt is expected to have decreased to just below the 60 % of GDP reference value in 2007 and to continue to decline moderately in future years. In terms of long-term sustainability of public finances, Austria appears to be at low risk.

In view of the above assessment, Austria is invited to take advantage of the slightly lower-than-targeted deficit outcome in 2007 to strengthen the adjustment effort in 2008 as well as to underpin the adjustment planned for the two final years of the programme with specific and sufficient measures, including financing of the envisaged tax reform. In this way, the MTO should be achieved earlier than foreseen in the programme, in particular by more rigorously implementing expenditure restraint and by using any unexpected tax revenues for budgetary consolidation.

The Council also notes that such actions would be consistent with the April 2007 Eurogroup orientations for fiscal policies.

Comparison of key macroeconomic and budgetary projections

| | 2006 | 2007 | 2008 | 2009 | 2010 |
| --- | --- | --- | --- | --- | --- |
| Real GDP
  (% change) | SP Nov 2007 | 3,3 | 3,4 | 2,4 | 2,5 | 2,5 |
| COM Nov 2007 | 3,3 | 3,3 | 2,7 | 2,4 | n.a. |
| SP Mar 2007 | 3,1 | 2,7 | 2,3 | 2,5 | 2,6 |
| HICP inflation
  (%) | SP Nov 2007 | 1,5 | 1,9 | 2,0 | 2,0 | 2,0 |
| COM Nov 2007 | 1,7 | 1,9 | 1,9 | 1,8 | n.a. |
| SP Mar 2007 | 1,5 | 1,6 | 1,7 | 1,7 | 1,8 |
| Output gap (5)

  (% of potential GDP) | SP Nov 2007 | – 0,5 | 0,4 | 0,4 | 0,5 | 0,5 |
| COM Nov 2007 (6) | – 0,4 | 0,4 | 0,8 | 0,8 | n.a. |
| SP Mar 2007 | – 0,3 | 0,1 | – 0,1 | 0,1 | 0,3 |
| Net lending/borrowing vis-à-vis the rest of the world
  (% of GDP) | SP Nov 2007 | 3,2 | 3,5 | 3,7 | 3,7 | 3,7 |
| COM Nov 2007 | 3,3 | 4,6 | 5,2 | 5,3 | n.a. |
| SP Mar 2007 | n.a. | n.a. | n.a. | n.a. | n.a. |
| General government balance
  (% of GDP) | SP Nov 2007 | – 1,4 | – 0,7 | – 0,6 | – 0,2 | 0,4 |
| COM Nov 2007 | – 1,4 | – 0,8 | – 0,7 | – 0,4 | n.a. |
| SP Mar 2007 | – 1,1 | – 0,9 | – 0,7 | – 0,2 | 0,4 |
| Primary balance
  (% of GDP) | SP Nov 2007 | 1,5 | 2,0 | 2,1 | 2,3 | 2,8 |
| COM Nov 2007 | 1,4 | 1,7 | 1,8 | 2,0 | n.a. |
| SP Mar 2007 | 1,9 | 2,0 | 2,1 | 2,6 | 3,1 |
| Cyclically-adjusted balance (5)

  (% of GDP) | SP Nov 2007 | – 1,2 | – 0,9 | – 0,8 | – 0,4 | 0,1 |
| COM Nov 2007 | – 1,2 | – 1,0 | – 1,0 | – 0,8 | n.a. |
| SP Mar 2007 | – 1,0 | – 0,9 | – 0,7 | – 0,2 | 0,2 |
| Structural balance (7)

  (% of GDP) | SP Nov 2007 | – 1,2 | – 0,7 | – 0,6 | – 0,4 | 0,1 |
| COM Nov 2007 | – 1,2 | – 1,0 | – 1,0 | – 0,8 | n.a. |
| SP Mar 2007 | – 1,0 | – 0,8 | – 0,4 | – 0,2 | 0,2 |
| Government gross debt
  (% of GDP) | SP Nov 2007 | 61,7 | 59,9 | 58,4 | 57,0 | 55,4 |
| COM Nov 2007 | 61,7 | 60,0 | 58,4 | 57,2 | n.a. |
| SP Mar 2007 | 62,2 | 61,2 | 59,9 | 58,5 | 56,8 |
| Stability programme (SP); Commission services' autumn 2007 economic forecasts (COM); Commission services' calculations. |

2006

2007

2008

2009

2010

Real GDP

(% change)

SP Nov 2007

3,3

3,4

2,4

2,5

2,5

COM Nov 2007

3,3

3,3

2,7

2,4

n.a.

SP Mar 2007

3,1

2,7

2,3

2,5

2,6

HICP inflation

(%)

SP Nov 2007

1,5

1,9

2,0

2,0

2,0

COM Nov 2007

1,7

1,9

1,9

1,8

n.a.

SP Mar 2007

1,5

1,6

1,7

1,7

1,8

Output gap (5)

(% of potential GDP)

SP Nov 2007

– 0,5

0,4

0,4

0,5

0,5

COM Nov 2007 (6)

– 0,4

0,4

0,8

0,8

n.a.

SP Mar 2007

– 0,3

0,1

– 0,1

0,1

0,3

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

(% of GDP)

SP Nov 2007

3,2

3,5

3,7

3,7

3,7

COM Nov 2007

3,3

4,6

5,2

5,3

n.a.

SP Mar 2007

n.a.

n.a.

n.a.

n.a.

n.a.

General government balance

(% of GDP)

SP Nov 2007

– 1,4

– 0,7

– 0,6

– 0,2

0,4

COM Nov 2007

– 1,4

– 0,8

– 0,7

– 0,4

n.a.

SP Mar 2007

– 1,1

– 0,9

– 0,7

– 0,2

0,4

Primary balance

(% of GDP)

SP Nov 2007

1,5

2,0

2,1

2,3

2,8

COM Nov 2007

1,4

1,7

1,8

2,0

n.a.

SP Mar 2007

1,9

2,0

2,1

2,6

3,1

Cyclically-adjusted balance (5)

(% of GDP)

SP Nov 2007

– 1,2

– 0,9

– 0,8

– 0,4

0,1

COM Nov 2007

– 1,2

– 1,0

– 1,0

– 0,8

n.a.

SP Mar 2007

– 1,0

– 0,9

– 0,7

– 0,2

0,2

Structural balance (7)

(% of GDP)

SP Nov 2007

– 1,2

– 0,7

– 0,6

– 0,4

0,1

COM Nov 2007

– 1,2

– 1,0

– 1,0

– 0,8

n.a.

SP Mar 2007

– 1,0

– 0,8

– 0,4

– 0,2

0,2

Government gross debt

(% of GDP)

SP Nov 2007

61,7

59,9

58,4

57,0

55,4

COM Nov 2007

61,7

60,0

58,4

57,2

n.a.

SP Mar 2007

62,2

61,2

59,9

58,5

56,8

Stability programme (SP); Commission services' autumn 2007 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://ec.europa.eu/economy_finance/about/activities/sgp/main_en.htm

(2)  The assessment takes into account notably the Commission services' autumn forecast and the Commission assessment of October 2007 implementation report of the national reform programme.

(3)  If one treated the additional expenditure for military equipment as a one-off measure (which the programme does as reported in the overview table below, even though the Commission services do not), the adjustment in structural deficit would be by 0,2 percentage point lower than if these one-off measures are disregarded.

(4)  In particular, the data on some components of the stock-flow adjustment as well as some items on long-term sustainability are not provided.

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

(6)  Based on estimated potential growth of 2,2 % in 2006 and 2,4 % in 2007-2009.

(7)  Cyclically-adjusted balance excluding one-off and other temporary measures. According to the most recent programme one-off and other temporary measures are 0,2 % of GDP in 2007 and 2008 and 0,1 % of GDP in 2009; all deficit-increasing (spending on military equipment). There are no one-off and other temporary measures in the Commission services' autumn forecast as the Commission services do not consider this expenditure on military equimpent as a one-off.

Sources:

Stability programme (SP); Commission services' autumn 2007 economic forecasts (COM); Commission services' calculations.

---

| 20.3.2008 | EN | Official Journal of the European Union | C 74/5 |
| --- | --- | --- | --- |

20.3.2008

EN

Official Journal of the European Union

C 74/5

---

COUNCIL OPINION

of 4 March 2008

on the updated stability programme of Slovenia, 2007-2010

(2008/C 74/02)

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 4 March 2008, the Council examined the updated stability programme of Slovenia, which covers the period 2007 to 2010. |
| --- | --- |

(1)

On 4 March 2008, the Council examined the updated stability programme of Slovenia, which covers the period 2007 to 2010.

| (2) | Slovenia's generally strong GDP growth throughout the last decade peaked during the first year of membership in the euro area. However, a marked pick-up in inflation, mainly due to commodity price developments in conjunction with a lack of competition in some sectors, was also registered in 2007, with spill-overs to wages being a risk for 2008.
  Against the background of the strong economic growth during the run-up to EU and euro area entry, good progress in consolidating public finances was made. For the future, enhancing labour productivity, keeping wages in line with productivity and continued fiscal efforts will be needed to foster macroeconomic stability, including lower inflation. Addressing the recent acceleration of inflation in Slovenia would help preserve the competitiveness of this export-oriented economy. Moreover, the long-term sustainability of public finances remains a challenge in view of the significant expected effects of ageing on the budget in the absence of further pension reform. To support the economy's ongoing catching-up process, it will be important to continue with structural reforms, especially regarding labour and product markets. In the same context, further redirecting public expenditure towards growth-enhancing categories, while tackling budget rigidity and improving the efficiency of spending, will also be beneficial. |
| --- | --- |

(2)

Slovenia's generally strong GDP growth throughout the last decade peaked during the first year of membership in the euro area. However, a marked pick-up in inflation, mainly due to commodity price developments in conjunction with a lack of competition in some sectors, was also registered in 2007, with spill-overs to wages being a risk for 2008.

Against the background of the strong economic growth during the run-up to EU and euro area entry, good progress in consolidating public finances was made. For the future, enhancing labour productivity, keeping wages in line with productivity and continued fiscal efforts will be needed to foster macroeconomic stability, including lower inflation. Addressing the recent acceleration of inflation in Slovenia would help preserve the competitiveness of this export-oriented economy. Moreover, the long-term sustainability of public finances remains a challenge in view of the significant expected effects of ageing on the budget in the absence of further pension reform. To support the economy's ongoing catching-up process, it will be important to continue with structural reforms, especially regarding labour and product markets. In the same context, further redirecting public expenditure towards growth-enhancing categories, while tackling budget rigidity and improving the efficiency of spending, will also be beneficial.

| (3) | The macroeconomic scenario underlying the programme envisages that real GDP growth will slow from 5,8 % in 2007 to 4,6 % in 2008 and 4,1 % in 2009 before picking up to reach 4,5 % by the end of the programme period. Assessed against currently available information (2), this scenario appears to be based on plausible growth assumptions, although risks for 2008 stemming from the external environment have increased since the completion of the stability programme. After the unexpected increase in inflation in 2007, the programme's projections for inflation are significantly higher than in last year's scenario. Nevertheless, they still appear to be on the low side for 2008 given recent developments in food and energy prices. Second-round effects from the strong pick-up in inflation in 2007 as well as public sector wage increases spilling over to the private sector could lead to a larger inflation differential with the rest of the euro area. If persistent, this would entail less favourable competitiveness developments than implied by the programme. |
| --- | --- |

(3)

The macroeconomic scenario underlying the programme envisages that real GDP growth will slow from 5,8 % in 2007 to 4,6 % in 2008 and 4,1 % in 2009 before picking up to reach 4,5 % by the end of the programme period. Assessed against currently available information (2), this scenario appears to be based on plausible growth assumptions, although risks for 2008 stemming from the external environment have increased since the completion of the stability programme. After the unexpected increase in inflation in 2007, the programme's projections for inflation are significantly higher than in last year's scenario. Nevertheless, they still appear to be on the low side for 2008 given recent developments in food and energy prices. Second-round effects from the strong pick-up in inflation in 2007 as well as public sector wage increases spilling over to the private sector could lead to a larger inflation differential with the rest of the euro area. If persistent, this would entail less favourable competitiveness developments than implied by the programme.

| (4) | For 2007, the general government deficit is estimated at 0,7 % of GDP in the Commission services' autumn 2007 forecast, against a target of 1,5 % of GDP set in the 2006 programme. The difference is mainly explained by a positive base effect from the 2006 outcome and by higher-than-projected nominal GDP growth in 2007. At the same time, also according to the 2007 update of the programme, more positive-than-planned revenue developments were partly offset by higher expenditure growth than planned in the 2006 programme. However, more recent information on a cash basis points to a better 2007 outturn, possibly a slight surplus. Overall, budgetary implementation in 2007 was in line with the Council opinion of 27 February 2007 on the 2006 stability programme (3), which invited Slovenia to speed up the achievement of the MTO taking advantage of the good economic conditions, including the better-than-expected budgetary outcome in 2006. The Council notes that the budgetary implementation in 2007 is also consistent with the April 2007 Eurogroup orientations for budgetary policies. |
| --- | --- |

(4)

For 2007, the general government deficit is estimated at 0,7 % of GDP in the Commission services' autumn 2007 forecast, against a target of 1,5 % of GDP set in the 2006 programme. The difference is mainly explained by a positive base effect from the 2006 outcome and by higher-than-projected nominal GDP growth in 2007. At the same time, also according to the 2007 update of the programme, more positive-than-planned revenue developments were partly offset by higher expenditure growth than planned in the 2006 programme. However, more recent information on a cash basis points to a better 2007 outturn, possibly a slight surplus. Overall, budgetary implementation in 2007 was in line with the Council opinion of 27 February 2007 on the 2006 stability programme (3), which invited Slovenia to speed up the achievement of the MTO taking advantage of the good economic conditions, including the better-than-expected budgetary outcome in 2006. The Council notes that the budgetary implementation in 2007 is also consistent with the April 2007 Eurogroup orientations for budgetary policies.

| (5) | The main goal of the medium-term budgetary strategy in the update is to respect the medium-term objective (MTO), which is a structural deficit (i.e. a cyclically-adjusted deficit net of one-off and other temporary measures) of 1 % of GDP, by a growing margin over the programme period, although some weakening is planned for 2008. This change vis-à-vis the previous programme's goal to reach the MTO by 2009 follows from the above-mentioned better-than-expected 2006 outturn (mainly reflecting higher nominal GDP growth), which implied that the MTO had already been broadly met in 2006. Compared to the 2006 programme, the headline deficit planned in the 2007 update is about 0,5 percentage point of GDP lower throughout the programme period, against the background of a better starting position.
  The deficit is planned to widen to 0,9 % of GDP in 2008 and then to gradually close, with the largest adjustment planned in the final year. Following a similar path, the primary surplus is projected to reach just above 1 % of GDP by 2010. The planned consolidation results from expenditure restraint more than offsetting, except in 2008, the gradual decline in the revenue ratio. The projected decline of primary expenditure over the programme period amounts to 2,25 percentage points of GDP. While relatively broad-based, it reflects especially contained developments of social spending, representing 1/3 of the total consolidation. Largely influenced by the ongoing tax reform, the gradual decline in the revenue ratio, by 1,75 percentage points, is mainly driven by indirect taxes, while a slight increase in the direct tax burden is projected. |
| --- | --- |

(5)

The main goal of the medium-term budgetary strategy in the update is to respect the medium-term objective (MTO), which is a structural deficit (i.e. a cyclically-adjusted deficit net of one-off and other temporary measures) of 1 % of GDP, by a growing margin over the programme period, although some weakening is planned for 2008. This change vis-à-vis the previous programme's goal to reach the MTO by 2009 follows from the above-mentioned better-than-expected 2006 outturn (mainly reflecting higher nominal GDP growth), which implied that the MTO had already been broadly met in 2006. Compared to the 2006 programme, the headline deficit planned in the 2007 update is about 0,5 percentage point of GDP lower throughout the programme period, against the background of a better starting position.

The deficit is planned to widen to 0,9 % of GDP in 2008 and then to gradually close, with the largest adjustment planned in the final year. Following a similar path, the primary surplus is projected to reach just above 1 % of GDP by 2010. The planned consolidation results from expenditure restraint more than offsetting, except in 2008, the gradual decline in the revenue ratio. The projected decline of primary expenditure over the programme period amounts to 2,25 percentage points of GDP. While relatively broad-based, it reflects especially contained developments of social spending, representing 1/3 of the total consolidation. Largely influenced by the ongoing tax reform, the gradual decline in the revenue ratio, by 1,75 percentage points, is mainly driven by indirect taxes, while a slight increase in the direct tax burden is projected.

| (6) | The risks to the budgetary projections in the programme appear broadly balanced in 2008, whereas budgetary outcomes could be somewhat worse than targeted in the outer years. In 2008, the possibility of a positive base effect due to a potentially better-than-expected 2007 budgetary outturn counterbalances the risks associated with the current deterioration of the external environment. Thereafter, there are certain risks to the implementation of the budgetary strategy due, in particular, to the sizeable magnitude of the back-loaded planned reduction in expenditure, with not all underlying measures spelt out in sufficient detail. To some degree, these risks are mitigated by Slovenia's good track record in the recent past, which suggests that outcomes might be better than expected. |
| --- | --- |

(6)

The risks to the budgetary projections in the programme appear broadly balanced in 2008, whereas budgetary outcomes could be somewhat worse than targeted in the outer years. In 2008, the possibility of a positive base effect due to a potentially better-than-expected 2007 budgetary outturn counterbalances the risks associated with the current deterioration of the external environment. Thereafter, there are certain risks to the implementation of the budgetary strategy due, in particular, to the sizeable magnitude of the back-loaded planned reduction in expenditure, with not all underlying measures spelt out in sufficient detail. To some degree, these risks are mitigated by Slovenia's good track record in the recent past, which suggests that outcomes might be better than expected.

| (7) | In view of this risk assessment, the budgetary stance in the programme seems sufficient to maintain the MTO throughout the programme period, but with a possibly smaller margin than planned for the outer years. The slight deterioration of the structural balance envisaged for 2008 may turn out to be pro-cyclical, although downside risks stemming from the external environment have increased. This would not be in line with the Stability and Growth Pact. Furthermore, a tighter fiscal stance than presently envisaged for 2008 appears to be warranted given the current strong inflationary pressures. The Council notes that this would also be consistent with the April 2007 Eurogroup orientations for budgetary policies, which called for carefully designing fiscal policy plans for 2008 to avoid feeding macroeconomic imbalances. After 2008, the fiscal policy stance implied by the programme is in line with the Pact. |
| --- | --- |

(7)

In view of this risk assessment, the budgetary stance in the programme seems sufficient to maintain the MTO throughout the programme period, but with a possibly smaller margin than planned for the outer years. The slight deterioration of the structural balance envisaged for 2008 may turn out to be pro-cyclical, although downside risks stemming from the external environment have increased. This would not be in line with the Stability and Growth Pact. Furthermore, a tighter fiscal stance than presently envisaged for 2008 appears to be warranted given the current strong inflationary pressures. The Council notes that this would also be consistent with the April 2007 Eurogroup orientations for budgetary policies, which called for carefully designing fiscal policy plans for 2008 to avoid feeding macroeconomic imbalances. After 2008, the fiscal policy stance implied by the programme is in line with the Pact.

| (8) | Slovenia appears to be at high risk with regard to the sustainability of public finances. The budgetary position in 2007 as estimated in the programme remained roughly unchanged compared with 2006 and is just sufficient to stabilise the debt ratio over the long-term before the budgetary impact of an ageing population is considered. However, the latter is well above the EU average, mainly reflecting a stronger increase in pension expenditure. High primary surpluses over the medium term and, in particular, further measures aimed at curbing the substantial increase in age-related expenditures would contribute to reducing risks to the sustainability of public finances. |
| --- | --- |

(8)

Slovenia appears to be at high risk with regard to the sustainability of public finances. The budgetary position in 2007 as estimated in the programme remained roughly unchanged compared with 2006 and is just sufficient to stabilise the debt ratio over the long-term before the budgetary impact of an ageing population is considered. However, the latter is well above the EU average, mainly reflecting a stronger increase in pension expenditure. High primary surpluses over the medium term and, in particular, further measures aimed at curbing the substantial increase in age-related expenditures would contribute to reducing risks to the sustainability of public finances.

| (9) | The stability programme seems to be consistent with the October 2007 implementation report of the national reform programme. In particular, both documents give account of the main reform measures under implementation, such as the comprehensive tax reform, infrastructure investments as well as changes to the system of social transfers. The programme does not include a detailed qualitative assessment of the overall impact of the national reform programme within the medium-term fiscal strategy. However, while this is not done in a systematic way, information on the direct budgetary impact associated with major reforms envisaged is given and has been taken into account in budgetary projections. |
| --- | --- |

(9)

The stability programme seems to be consistent with the October 2007 implementation report of the national reform programme. In particular, both documents give account of the main reform measures under implementation, such as the comprehensive tax reform, infrastructure investments as well as changes to the system of social transfers. The programme does not include a detailed qualitative assessment of the overall impact of the national reform programme within the medium-term fiscal strategy. However, while this is not done in a systematic way, information on the direct budgetary impact associated with major reforms envisaged is given and has been taken into account in budgetary projections.

| (10) | The budgetary strategy in the programme is partly consistent with the country-specific broad economic policy guidelines included in the integrated guidelines and the guidelines for euro area Member States in the area of budgetary policies issued in the context of the Lisbon strategy. In particular, it does not include significant further measures to strengthen the reform of the pension system with a view to ensuring long-term sustainability. |
| --- | --- |

(10)

The budgetary strategy in the programme is partly consistent with the country-specific broad economic policy guidelines included in the integrated guidelines and the guidelines for euro area Member States in the area of budgetary policies issued in the context of the Lisbon strategy. In particular, it does not include significant further measures to strengthen the reform of the pension system with a view to ensuring long-term sustainability.

| (11) | As regards the data requirements specified in the code of conduct for stability and convergence programmes, the programme has some gaps in the required and optional data (4). |
| --- | --- |

(11)

As regards the data requirements specified in the code of conduct for stability and convergence programmes, the programme has some gaps in the required and optional data (4).

The overall conclusion is that Slovenia met its MTO in 2007, two years ahead of previous plans, and that the programme aims at respecting the MTO by a growing margin over the programme period. For 2007, the most recent available information points to a better-than-planned budgetary outturn, possibly a slight surplus. However, for 2008, a slight deterioration of the structural balance is envisaged despite the continuing strong growth prospects. The risks to the budgetary projections are broadly balanced in 2008. In the outer years, budgetary outcomes might be slightly worse than targeted, mainly due to risks associated with the envisaged reliance on expenditure restraint. The fiscal stance in 2008 may turn out to be pro-cyclical. A tighter fiscal stance than presently envisaged for 2008 appears to be warranted also given the current strong inflationary pressures. The high projected increase in public sector wage settlements is also a concern for the inflation outlook. In spite of the current low debt level, Slovenia is assessed to be at high risk with regard to the long-term sustainability of public finances due to the significant projected budgetary impact of ageing.

In view of the above assessment Slovenia is invited to:

| (i) | building on a likely better-than-expected outturn in 2007, aim for stronger budgetary positions in 2008 and beyond than planned in the programme, thereby avoiding pro-cyclical policies; |
| --- | --- |

(i)

building on a likely better-than-expected outturn in 2007, aim for stronger budgetary positions in 2008 and beyond than planned in the programme, thereby avoiding pro-cyclical policies;

| (ii) | stand ready to adopt further measures to tame inflationary pressures, complementing the recommended fiscal stance with appropriate wage, labour market and competition policies; |
| --- | --- |

(ii)

stand ready to adopt further measures to tame inflationary pressures, complementing the recommended fiscal stance with appropriate wage, labour market and competition policies;

| (iii) | in view of the projected increase in age-related expenditure, improve the long-term sustainability of public finances, in particular by further reforming the pension system. |
| --- | --- |

(iii)

in view of the projected increase in age-related expenditure, improve the long-term sustainability of public finances, in particular by further reforming the pension system.

The Council also notes that such actions would be consistent with the April 2007 Eurogroup orientations for fiscal policies.

Comparison of key macroeconomic and budgetary projections

| | 2006 | 2007 | 2008 | 2009 | 2010 |
| --- | --- | --- | --- | --- | --- |
| Real GDP
  (% change) | SP Nov 2007 | 5,7 | 5,8 | 4,6 | 4,1 | 4,5 |
| COM Nov 2007 | 5,7 | 6,0 | 4,6 | 4,0 | n.a. |
| SP Dec 2006 | 4,7 | 4,3 | 4,2 | 4,1 | n.a. |
| HICP inflation
  (%) | SP Nov 2007 | 2,5 | 3,4 | 3,5 | 2,8 | 2,6 |
| COM Nov 2007 | 2,5 | 3,5 | 3,7 | 2,9 | n.a. |
| SP Dec 2006 | 2,7 | 2,7 | 2,5 | 2,2 | n.a. |
| Output gap (5)

  (% of potential GDP) | SP Nov 2007 | – 0,2 | 0,7 | 0,5 | 0,1 | 0,2 |
| COM Nov 2007 (6) | – 0,2 | 0,9 | 0,8 | 0,3 | n.a. |
| SP Dec 2006 | – 0,5 | – 0,2 | 0,0 | 0,3 | n.a. |
| Net lending/borrowing vis-à-vis the rest of the world
  (% of GDP) | SP Nov 2007 | – 2,8 | – 3,5 | – 3,1 | – 2,0 | – 1,6 |
| COM Nov 2007 | – 2,6 | – 3,3 | – 2,6 | – 1,9 | n.a. |
| SP Dec 2006 | n.a. | n.a. | n.a. | n.a. | n.a. |
| General government balance
  (% of GDP) | SP Nov 2007 | – 1,2 | – 0,6 | – 0,9 | – 0,6 | 0,0 |
| COM Nov 2007 | – 1,2 | – 0,7 | – 1,0 | – 0,8 | n.a. |
| SP Dec 2006 | – 1,6 | – 1,5 | – 1,6 | – 1,0 | n.a. |
| Primary balance
  (% of GDP) | SP Nov 2007 | 0,2 | 0,7 | 0,2 | 0,6 | 1,1 |
| COM Nov 2007 | 0,2 | 0,7 | 0,3 | 0,4 | n.a. |
| SP Dec 2006 | 0,1 | – 0,1 | – 0,3 | 0,3 | n.a. |
| Cyclically-adjusted balance (5)

  (% of GDP) | SP Nov 2007 | – 1,1 | – 0,9 | – 1,1 | – 0,7 | – 0,1 |
| COM Nov 2007 | – 1,1 | – 1,1 | – 1,4 | – 1,0 | n.a. |
| SP Dec 2006 | – 1,4 | – 1,4 | – 1,6 | – 1,1 | n.a. |
| Structural balance (7)

  (% of GDP) | SP Nov 2007 | – 1,1 | – 0,8 | – 1,0 | – 0,7 | – 0,1 |
| COM Nov 2007 | – 1,1 | – 1,1 | – 1,4 | – 1,0 | n.a. |
| SP Dec 2006 | – 1,4 | – 1,4 | – 1,6 | – 1,1 | n.a. |
| Government gross debt
  (% of GDP) | SP Nov 2007 | 27,1 | 25,6 | 24,7 | 23,8 | 22,5 |
| COM Nov 2007 | 27,1 | 25,6 | 24,5 | 23,8 | n.a. |
| SP Dec 2006 | 28,5 | 28,2 | 28,3 | 27,7 | n.a. |
| Stability programme (SP); Commission services' autumn 2007 economic forecasts (COM); Commission services' calculations. |

2006

2007

2008

2009

2010

Real GDP

(% change)

SP Nov 2007

5,7

5,8

4,6

4,1

4,5

COM Nov 2007

5,7

6,0

4,6

4,0

n.a.

SP Dec 2006

4,7

4,3

4,2

4,1

n.a.

HICP inflation

(%)

SP Nov 2007

2,5

3,4

3,5

2,8

2,6

COM Nov 2007

2,5

3,5

3,7

2,9

n.a.

SP Dec 2006

2,7

2,7

2,5

2,2

n.a.

Output gap (5)

(% of potential GDP)

SP Nov 2007

– 0,2

0,7

0,5

0,1

0,2

COM Nov 2007 (6)

– 0,2

0,9

0,8

0,3

n.a.

SP Dec 2006

– 0,5

– 0,2

0,0

0,3

n.a.

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

(% of GDP)

SP Nov 2007

– 2,8

– 3,5

– 3,1

– 2,0

– 1,6

COM Nov 2007

– 2,6

– 3,3

– 2,6

– 1,9

n.a.

SP Dec 2006

n.a.

n.a.

n.a.

n.a.

n.a.

General government balance

(% of GDP)

SP Nov 2007

– 1,2

– 0,6

– 0,9

– 0,6

0,0

COM Nov 2007

– 1,2

– 0,7

– 1,0

– 0,8

n.a.

SP Dec 2006

– 1,6

– 1,5

– 1,6

– 1,0

n.a.

Primary balance

(% of GDP)

SP Nov 2007

0,2

0,7

0,2

0,6

1,1

COM Nov 2007

0,2

0,7

0,3

0,4

n.a.

SP Dec 2006

0,1

– 0,1

– 0,3

0,3

n.a.

Cyclically-adjusted balance (5)

(% of GDP)

SP Nov 2007

– 1,1

– 0,9

– 1,1

– 0,7

– 0,1

COM Nov 2007

– 1,1

– 1,1

– 1,4

– 1,0

n.a.

SP Dec 2006

– 1,4

– 1,4

– 1,6

– 1,1

n.a.

Structural balance (7)

(% of GDP)

SP Nov 2007

– 1,1

– 0,8

– 1,0

– 0,7

– 0,1

COM Nov 2007

– 1,1

– 1,1

– 1,4

– 1,0

n.a.

SP Dec 2006

– 1,4

– 1,4

– 1,6

– 1,1

n.a.

Government gross debt

(% of GDP)

SP Nov 2007

27,1

25,6

24,7

23,8

22,5

COM Nov 2007

27,1

25,6

24,5

23,8

n.a.

SP Dec 2006

28,5

28,2

28,3

27,7

n.a.

Stability programme (SP); Commission services' autumn 2007 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://ec.europa.eu/economy_finance/about/activities/sgp/main_en.htm

(2)  The assessment takes into account notably the Commission services' autumn forecast and the Commission assessment of the October 2007 implementation report of the national reform programme.

(3)  OJ C 71, 28.3.2007, p. 9.

(4)  In particular, the data on some external assumptions (‘World excluding EU, GDP growth’, ‘World import volumes, excluding EU’) and on some items regarding sectoral balances as well as the breakdown of the stock-flow adjustment of the debt level are missing.

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

(6)  Based on estimated potential growth of 4,2 %, 4,9 %, 4,7 % and 4,5 % respectively in the period 2006-2009.

(7)  Cyclically-adjusted balance excluding one-off and other temporary measures. One-off and other temporary measures are 0,1 % of GDP in 2007 and 0,1 % in 2008, both deficit-increasing, according to the most recent programme. The Commission services do not consider these to be one-off measures hence there are no one-off measures in the Commission services' forecast.

Sources:

Stability programme (SP); Commission services' autumn 2007 economic forecasts (COM); Commission services' calculations.

---

| 20.3.2008 | EN | Official Journal of the European Union | C 74/10 |
| --- | --- | --- | --- |

20.3.2008

EN

Official Journal of the European Union

C 74/10

---

COUNCIL OPINION

of 4 March 2008

on the updated stability programme of Ireland, 2007-2010

(2008/C 74/03)

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 4 March 2008, the Council examined the updated stability programme of Ireland, which covers the period 2007 to 2010. |
| --- | --- |

(1)

On 4 March 2008, the Council examined the updated stability programme of Ireland, which covers the period 2007 to 2010.

| (2) | After more than a decade of buoyant economic growth, per capita income in the Irish economy is among the highest in the European Union. This development was supported initially by strong export growth and more recently by rapidly rising domestic demand. During this period, public finances improved considerably, thereby allowing an impressive reduction in the public debt ratio.
  The economy is now facing a transition to a period of lower growth characterised by a deterioration in competitiveness because of recent adverse productivity and price developments, exacerbated by its exposure to the US and UK economies. On the domestic side, the growth slowdown reflects a return to more sustainable levels of activity in the residential construction sector, weakening asset values and rising unemployment. These developments could prove challenging for public finances, in spite of their overall strong position, given the foreseen weakening in tax revenues and the expectations for higher spending in upgrading public services generated by a prolonged period of budgetary surpluses. The outlook for the public finances in the short and medium term also places additional urgency on addressing concerns about their long-term sustainability associated with population ageing. |
| --- | --- |

(2)

After more than a decade of buoyant economic growth, per capita income in the Irish economy is among the highest in the European Union. This development was supported initially by strong export growth and more recently by rapidly rising domestic demand. During this period, public finances improved considerably, thereby allowing an impressive reduction in the public debt ratio.

The economy is now facing a transition to a period of lower growth characterised by a deterioration in competitiveness because of recent adverse productivity and price developments, exacerbated by its exposure to the US and UK economies. On the domestic side, the growth slowdown reflects a return to more sustainable levels of activity in the residential construction sector, weakening asset values and rising unemployment. These developments could prove challenging for public finances, in spite of their overall strong position, given the foreseen weakening in tax revenues and the expectations for higher spending in upgrading public services generated by a prolonged period of budgetary surpluses. The outlook for the public finances in the short and medium term also places additional urgency on addressing concerns about their long-term sustainability associated with population ageing.

| (3) | The macroeconomic scenario underlying the programme envisages that real GDP growth will fall from 4,8 % in 2007 to 3,5 % on average over the remainder of the programme period. Assessed against currently available information (2), this scenario appears to be plausible. It reflects mainly a large adjustment in the housing sector, offset to a certain extent by a continued recovery in net exports. The programme's projection for inflation appears to be somewhat on the low side for 2008 given recent developments in food and energy prices, but plausible thereafter. Inflation and competitiveness prospects in the outer years of the programme are supported by an improvement in productivity and the downward impact of a slowing labour market on wage pressures. The stability programme also envisages a fall in the external deficit, which is consistent with a weakening of domestic demand. |
| --- | --- |

(3)

The macroeconomic scenario underlying the programme envisages that real GDP growth will fall from 4,8 % in 2007 to 3,5 % on average over the remainder of the programme period. Assessed against currently available information (2), this scenario appears to be plausible. It reflects mainly a large adjustment in the housing sector, offset to a certain extent by a continued recovery in net exports. The programme's projection for inflation appears to be somewhat on the low side for 2008 given recent developments in food and energy prices, but plausible thereafter. Inflation and competitiveness prospects in the outer years of the programme are supported by an improvement in productivity and the downward impact of a slowing labour market on wage pressures. The stability programme also envisages a fall in the external deficit, which is consistent with a weakening of domestic demand.

| (4) | For 2007, the general government surplus is estimated at 0,5 % of GDP in the December 2007 stability programme against a target of 1,2 % of GDP in the previous update and 0,9 % of GDP in the Commission services' autumn 2007 forecast. This downward revision reflects higher-than-programmed expenditure and a revenue shortfall, both of which were partly offset by a positive 2006 base effect. While the out-turn for central government expenditure in cash terms was broadly in line with budget plans higher-than-planned spending growth occurred in general government, especially in current expenditure on goods and services and capital grants. The revenue shortfall reflected in particular the deterioration in the housing market. The opinion of the Council on the previous update of the stability programme (3) was that ‘the medium-term budgetary position is sound (...). Nonetheless, it would be prudent to maintain room for manoeuvre against any reversal of the current growth pattern which has been led by strong housing sector developments’. The 2007 budget outturn, entailing a sizable reduction of the structural surplus, reduced the room for manoeuvre into 2008. The Council notes that, although the structural balance remained better than the MTO, expenditure overruns in 2007 imply that budgetary implementation may not be fully consistent with the April 2007 Eurogroup orientations for budgetary policies. |
| --- | --- |

(4)

For 2007, the general government surplus is estimated at 0,5 % of GDP in the December 2007 stability programme against a target of 1,2 % of GDP in the previous update and 0,9 % of GDP in the Commission services' autumn 2007 forecast. This downward revision reflects higher-than-programmed expenditure and a revenue shortfall, both of which were partly offset by a positive 2006 base effect. While the out-turn for central government expenditure in cash terms was broadly in line with budget plans higher-than-planned spending growth occurred in general government, especially in current expenditure on goods and services and capital grants. The revenue shortfall reflected in particular the deterioration in the housing market. The opinion of the Council on the previous update of the stability programme (3) was that ‘the medium-term budgetary position is sound (...). Nonetheless, it would be prudent to maintain room for manoeuvre against any reversal of the current growth pattern which has been led by strong housing sector developments’. The 2007 budget outturn, entailing a sizable reduction of the structural surplus, reduced the room for manoeuvre into 2008. The Council notes that, although the structural balance remained better than the MTO, expenditure overruns in 2007 imply that budgetary implementation may not be fully consistent with the April 2007 Eurogroup orientations for budgetary policies.

| (5) | Despite the weakening of the budgetary position in 2007, the medium-term objective (MTO), which is a balanced position in structural terms (i.e. in cyclically-adjusted terms net of one-off and other temporary measures), was reached by a large margin. The strategy outlined in the programme implies a weakening of the structural balance in 2008. Calculated according to the commonly agreed methodology, the structural surplus of 0,5 % of GDP in 2007 is expected to turn into a deficit of around 0,5 % of GDP in 2008 and to gradually worsen in subsequent years to a deficit of 0,75 % of GDP in 2010.
  The headline balance is projected to fall from a surplus of 0,5 % of GDP in 2007 to a deficit around 1 % over the remainder of the programme period. Starting from the worse-than-expected outturn in 2007 (by 0,75 percentage point of GDP) and against a weaker macroeconomic background, the headline budgetary targets for 2008-2009 are clearly lower than in the previous update (by 1,75 percentage points of GDP). For 2008, the programme projects the revenue ratio to fall further as the composition of growth becomes less tax-rich, while expenditure is expected to rise reflecting the impact of spending decisions in 2007 and earlier years, as well as those announced in Budget 2008. The budgetary projections for 2009 and 2010 explicitly incorporate unallocated contingency provisions of, respectively, 0,4 % and 0,8 % of GDP. In 2009 and 2010, the revenue ratio is expected to continue declining, albeit less rapidly, while the expenditure ratio is projected to broadly stabilise in 2009 and to decline in 2010. Despite the deteriorating economic and fiscal environment, investment spending is expected to be increased as a percentage of GDP over the programme period which should help the long-term productive potential of the economy. |
| --- | --- |

(5)

Despite the weakening of the budgetary position in 2007, the medium-term objective (MTO), which is a balanced position in structural terms (i.e. in cyclically-adjusted terms net of one-off and other temporary measures), was reached by a large margin. The strategy outlined in the programme implies a weakening of the structural balance in 2008. Calculated according to the commonly agreed methodology, the structural surplus of 0,5 % of GDP in 2007 is expected to turn into a deficit of around 0,5 % of GDP in 2008 and to gradually worsen in subsequent years to a deficit of 0,75 % of GDP in 2010.

The headline balance is projected to fall from a surplus of 0,5 % of GDP in 2007 to a deficit around 1 % over the remainder of the programme period. Starting from the worse-than-expected outturn in 2007 (by 0,75 percentage point of GDP) and against a weaker macroeconomic background, the headline budgetary targets for 2008-2009 are clearly lower than in the previous update (by 1,75 percentage points of GDP). For 2008, the programme projects the revenue ratio to fall further as the composition of growth becomes less tax-rich, while expenditure is expected to rise reflecting the impact of spending decisions in 2007 and earlier years, as well as those announced in Budget 2008. The budgetary projections for 2009 and 2010 explicitly incorporate unallocated contingency provisions of, respectively, 0,4 % and 0,8 % of GDP. In 2009 and 2010, the revenue ratio is expected to continue declining, albeit less rapidly, while the expenditure ratio is projected to broadly stabilise in 2009 and to decline in 2010. Despite the deteriorating economic and fiscal environment, investment spending is expected to be increased as a percentage of GDP over the programme period which should help the long-term productive potential of the economy.

| (6) | The risks to the budgetary projections in the programme appear broadly balanced in 2008. However, in subsequent years, there is a lack of information about what broad measures will be taken so that current spending growth will be contained below nominal GDP growth, especially as regards the public wage bill and social transfer payments, both of which have increased substantially in recent years as a percent of GDP. Furthermore, there are also risks on the revenue side associated with previous commitments to reduce tax and social contribution rates. Moreover, while the inclusion of the contingency provisions in the budgetary projections could reflect prudent planning, it cannot be excluded that they may be used for future revenue-reducing and/or expenditure-increasing measures. Against these factors should be weighed Ireland's good track record as the outturns for the fiscal balance have generally been better than projected in recent stability programmes. |
| --- | --- |

(6)

The risks to the budgetary projections in the programme appear broadly balanced in 2008. However, in subsequent years, there is a lack of information about what broad measures will be taken so that current spending growth will be contained below nominal GDP growth, especially as regards the public wage bill and social transfer payments, both of which have increased substantially in recent years as a percent of GDP. Furthermore, there are also risks on the revenue side associated with previous commitments to reduce tax and social contribution rates. Moreover, while the inclusion of the contingency provisions in the budgetary projections could reflect prudent planning, it cannot be excluded that they may be used for future revenue-reducing and/or expenditure-increasing measures. Against these factors should be weighed Ireland's good track record as the outturns for the fiscal balance have generally been better than projected in recent stability programmes.

| (7) | In view of this risk assessment, the budgetary stance in the programme may be insufficient to maintain the MTO after 2008. While the MTO would be broadly reached in 2008, the fiscal stance thereafter could imply that the structural balance moves away from the MTO, which would not be in line with the Stability and Growth Pact — and the Council notes that this would also not be consistent with the April 2007 Eurogroup orientations for budgetary policies — unless the margins foreseen in the programme as contingency provisions remain unused, implying a significantly better tax position and/or greater spending containment than shown in the programme. Should that be the case, the structural effort should be strengthened to remain at the MTO and be in line with the Pact. |
| --- | --- |

(7)

In view of this risk assessment, the budgetary stance in the programme may be insufficient to maintain the MTO after 2008. While the MTO would be broadly reached in 2008, the fiscal stance thereafter could imply that the structural balance moves away from the MTO, which would not be in line with the Stability and Growth Pact — and the Council notes that this would also not be consistent with the April 2007 Eurogroup orientations for budgetary policies — unless the margins foreseen in the programme as contingency provisions remain unused, implying a significantly better tax position and/or greater spending containment than shown in the programme. Should that be the case, the structural effort should be strengthened to remain at the MTO and be in line with the Pact.

| (8) | Ireland appears to be at medium risk with regard to the sustainability of public finances. The long-term budgetary impact of ageing is well above the EU average, mainly as a result of a relatively high projected increase in pension expenditure over the coming decades, influenced in part by the maturing of the pension system. Yet, the gross debt ratio is well below 60 % of GDP in 2007 and, in order to pre-fund part of future pension expenditure, assets are accumulated in the National Pension Reserve Fund. The budgetary position in 2007 as estimated in the programme, although worse than in the previous programme, still contributes to offset the projected long-term budgetary impact of the ageing population. However, this is not sufficient to cover future spending pressures. In addition, developments in the structural balance as projected in the programme until 2010 could put the sustainability of public finances at greater risk. Therefore, maintaining high primary surpluses over the medium term and implementing further measures aimed at curbing the substantial increase in age-related expenditures would contribute to reducing risks to the sustainability of public finances. |
| --- | --- |

(8)

Ireland appears to be at medium risk with regard to the sustainability of public finances. The long-term budgetary impact of ageing is well above the EU average, mainly as a result of a relatively high projected increase in pension expenditure over the coming decades, influenced in part by the maturing of the pension system. Yet, the gross debt ratio is well below 60 % of GDP in 2007 and, in order to pre-fund part of future pension expenditure, assets are accumulated in the National Pension Reserve Fund. The budgetary position in 2007 as estimated in the programme, although worse than in the previous programme, still contributes to offset the projected long-term budgetary impact of the ageing population. However, this is not sufficient to cover future spending pressures. In addition, developments in the structural balance as projected in the programme until 2010 could put the sustainability of public finances at greater risk. Therefore, maintaining high primary surpluses over the medium term and implementing further measures aimed at curbing the substantial increase in age-related expenditures would contribute to reducing risks to the sustainability of public finances.

| (9) | The stability programme seems to be consistent with the October 2007 implementation report of the national reform programme. The stability programme does not give detailed information about how the budgetary impact of the measures embodied in the implementation report is taken into account in the programme. Nevertheless, both documents point to the central role of the Stability and Growth Pact as providing the framework for sustainable fiscal policies in Ireland, while implementation of the National Development Plan 2007-2013 (for investment, especially in infrastructure) is highlighted in both documents as being the government's key priority. |
| --- | --- |

(9)

The stability programme seems to be consistent with the October 2007 implementation report of the national reform programme. The stability programme does not give detailed information about how the budgetary impact of the measures embodied in the implementation report is taken into account in the programme. Nevertheless, both documents point to the central role of the Stability and Growth Pact as providing the framework for sustainable fiscal policies in Ireland, while implementation of the National Development Plan 2007-2013 (for investment, especially in infrastructure) is highlighted in both documents as being the government's key priority.

| (10) | The budgetary strategy in the programme is broadly consistent with the country-specific broad economic policy guidelines included in the integrated guidelines and the guidelines for euro area Member States in the area of budgetary policies issued in the context of the Lisbon strategy. |
| --- | --- |

(10)

The budgetary strategy in the programme is broadly consistent with the country-specific broad economic policy guidelines included in the integrated guidelines and the guidelines for euro area Member States in the area of budgetary policies issued in the context of the Lisbon strategy.

| (11) | As regards the data requirements specified in the code of conduct for stability and convergence programmes, the programme has some gaps in the required and optional data (4). |
| --- | --- |

(11)

As regards the data requirements specified in the code of conduct for stability and convergence programmes, the programme has some gaps in the required and optional data (4).

The overall conclusion is that Ireland is facing several macroeconomic challenges in its transition to a period of lower economic growth, mainly linked to a return to more sustainable activity in the housing sector. Slowing domestic demand has been accompanied by losses in recent years in export market shares, pointing to price competitiveness challenges. The fiscal position is expected to register a noticeable deterioration in 2007-2008, from a sound surplus in 2006. While Ireland is expected to continue to register a surplus in 2007, the programme foresees that the structural position will turn into a deficit in 2008 which will increase somewhat thereafter. The risks attached to the budgetary projections are broadly neutral in 2008, but from 2009, in the absence of adequate expenditure containment, outcomes could be worse than projected. While the MTO would be broadly reached in 2008, keeping to the MTO thereafter should be possible if the margins foreseen in the programme as contingency provisions remain unused. Furthermore, regarding the long-term sustainability of the public finances, while the public debt is low, Ireland is at medium risk because of the projected impact of population ageing on pension expenditure. The challenge for the authorities will be to deal with macroeconomic risks, while at the same time avoiding a deterioration of the fiscal situation

In view of the above assessment Ireland is invited to:

| (i) | keep to the MTO in 2008 and thereafter, by maintaining firm control over expenditures; |
| --- | --- |

(i)

keep to the MTO in 2008 and thereafter, by maintaining firm control over expenditures;

| (ii) | in view of the significant projected increase in age-related expenditure, improve the long-term sustainability of public finances by implementing further pension reforms. |
| --- | --- |

(ii)

in view of the significant projected increase in age-related expenditure, improve the long-term sustainability of public finances by implementing further pension reforms.

The Council also notes that such actions would be consistent with the April 2007 Eurogroup orientations for fiscal policies.

Comparison of key macroeconomic and budgetary projections

| | 2006 | 2007 | 2008 | 2009 | 2010 |
| --- | --- | --- | --- | --- | --- |
| Real GDP
  (% change) | SP Dec 2007 | 5,7 | 4,8 | 3,0 | 3,5 | 4,1 |
| COM Nov 2007 | 5,7 | 4,9 | 3,5 | 3,8 | n.a. |
| SP Dec 2006 | 5,4 | 5,3 | 4,6 | 4,1 | n.a. |
| HICP inflation
  (%) | SP Dec 2007 | 2,7 | 2,8 | 2,4 | 2,0 | 1,8 |
| COM Nov 2007 | 2,7 | 2,8 | 2,2 | 2,0 | n.a. |
| SP Dec 2006 | 2,7 | 2,6 | 2,0 | 1,7 | n.a. |
| Output gap (5)

  (% of potential GDP) | SP Dec 2007 | – 0,2 | – 0,5 | – 1,3 | – 1,5 | – 0,7 |
| COM Nov 2007 (6) | – 0,5 | – 0,7 | – 1,2 | – 1,3 | n.a. |
| SP Dec 2006 | – 1,2 | – 1,6 | – 2,2 | – 2,5 | n.a. |
| Net lending/borrowing vis-à-vis the rest of the world
  (% of GDP) | SP Dec 2007 | – 4,2 | – 4,4 | – 3,9 | – 3,5 | – 3,1 |
| COM Nov 2007 | – 4,0 | – 4,5 | – 4,3 | – 4,2 | n.a. |
| SP Dec 2006 | – 3,4 | – 4,3 | – 4,0 | – 3,5 | n.a. |
| General government balance
  (% of GDP) | SP Dec 2007 | 2,9 | 0,5 | – 0,9 | – 1,1 | – 1,0 |
| COM Nov 2007 | 2,9 | 0,9 | – 0,2 | – 0,6 | n.a. |
| SP Dec 2006 | 2,3 | 1,2 | 0,9 | 0,6 | n.a. |
| Primary balance
  (% of GDP) | SP Dec 2007 | 3,9 | 1,4 | 0,0 | – 0,1 | 0,0 |
| COM Nov 2007 | 3,9 | 1,8 | 0,7 | 0,4 | n.a. |
| SP Dec 2006 | 3,3 | 2,3 | 1,8 | 1,6 | n.a. |
| Cyclically-adjusted balance (5)

  (% of GDP) | SP Dec 2007 | 3,0 | 0,7 | – 0,4 | – 0,5 | – 0,7 |
| COM Nov 2007 | 3,1 | 1,2 | 0,3 | 0,0 | n.a. |
| SP Dec 2006 | 2,8 | 1,8 | 1,8 | 1,6 | n.a. |
| Structural balance (7)

  (% of GDP) | SP Dec 2007 | 2,9 | 0,5 | – 0,4 | – 0,5 | – 0,7 |
| COM Nov 2007 | 3,1 | 1,2 | 0,3 | 0,0 | n.a. |
| SP Dec 2006 | 2,7 | 1,8 | 1,8 | 1,6 | n.a. |
| Government gross debt
  (% of GDP) | SP Dec 2007 | 25,1 | 25,1 | 25,9 | 27,6 | 28,7 |
| COM Nov 2007 | 25,1 | 25,2 | 26,9 | 28,5 | n.a. |
| SP Dec 2006 | 25,1 | 23,0 | 22,4 | 21,9 | n.a. |
| Stability programme (SP); Commission services' autumn 2007 economic forecasts (COM) which were completed on a pre-budget basis; Commission services' calculations (based on pre-budget estimates). |

2006

2007

2008

2009

2010

Real GDP

(% change)

SP Dec 2007

5,7

4,8

3,0

3,5

4,1

COM Nov 2007

5,7

4,9

3,5

3,8

n.a.

SP Dec 2006

5,4

5,3

4,6

4,1

n.a.

HICP inflation

(%)

SP Dec 2007

2,7

2,8

2,4

2,0

1,8

COM Nov 2007

2,7

2,8

2,2

2,0

n.a.

SP Dec 2006

2,7

2,6

2,0

1,7

n.a.

Output gap (5)

(% of potential GDP)

SP Dec 2007

– 0,2

– 0,5

– 1,3

– 1,5

– 0,7

COM Nov 2007 (6)

– 0,5

– 0,7

– 1,2

– 1,3

n.a.

SP Dec 2006

– 1,2

– 1,6

– 2,2

– 2,5

n.a.

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

(% of GDP)

SP Dec 2007

– 4,2

– 4,4

– 3,9

– 3,5

– 3,1

COM Nov 2007

– 4,0

– 4,5

– 4,3

– 4,2

n.a.

SP Dec 2006

– 3,4

– 4,3

– 4,0

– 3,5

n.a.

General government balance

(% of GDP)

SP Dec 2007

2,9

0,5

– 0,9

– 1,1

– 1,0

COM Nov 2007

2,9

0,9

– 0,2

– 0,6

n.a.

SP Dec 2006

2,3

1,2

0,9

0,6

n.a.

Primary balance

(% of GDP)

SP Dec 2007

3,9

1,4

0,0

– 0,1

0,0

COM Nov 2007

3,9

1,8

0,7

0,4

n.a.

SP Dec 2006

3,3

2,3

1,8

1,6

n.a.

Cyclically-adjusted balance (5)

(% of GDP)

SP Dec 2007

3,0

0,7

– 0,4

– 0,5

– 0,7

COM Nov 2007

3,1

1,2

0,3

0,0

n.a.

SP Dec 2006

2,8

1,8

1,8

1,6

n.a.

Structural balance (7)

(% of GDP)

SP Dec 2007

2,9

0,5

– 0,4

– 0,5

– 0,7

COM Nov 2007

3,1

1,2

0,3

0,0

n.a.

SP Dec 2006

2,7

1,8

1,8

1,6

n.a.

Government gross debt

(% of GDP)

SP Dec 2007

25,1

25,1

25,9

27,6

28,7

COM Nov 2007

25,1

25,2

26,9

28,5

n.a.

SP Dec 2006

25,1

23,0

22,4

21,9

n.a.

Stability programme (SP); Commission services' autumn 2007 economic forecasts (COM) which were completed on a pre-budget basis; Commission services' calculations (based on pre-budget estimates).

---

(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://ec.europa.eu/economy_finance/about/activities/sgp/main_en.htm

(2)  The assessment takes into account notably the Commission services' autumn forecast and the Commission assessment of the October 2007 implementation report on the national reform programme.

(3)  OJ C 70, 27.3.2007, p. 1.

(4)  In particular, where required data are concerned, only short-term interest rates were not provided. On the optional data side, gaps include sectoral balance and government expenditure by function.

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

(6)  Based on estimated potential growth of 5,9 %, 5,2 %, 4,1 % and 3,8 % respectively in the period 2006-2009.

(7)  Cyclically-adjusted balance excluding one-off and other temporary measures. One-off and other temporary measures are 0,1 % of GDP in 2006 and 0,2 % in 2007 (all surplus-increasing) according to the most recent programme and 0,0 % of GDP in 2006 and 0,0 % in 2007 in the Commission services' autumn forecast. According to information presented by the national authorities, they represent the impact of (i) additional revenue secured through special investigations by the tax authorities; and (ii) the payment of an exit tax associated with special savings accounts (SSIAs). These one-offs were excluded in the autumn forecast in the absence of detailed information. No information on one-offs in the period 2008-2010 is provided in the programme.

Sources:

Stability programme (SP); Commission services' autumn 2007 economic forecasts (COM) which were completed on a pre-budget basis; Commission services' calculations (based on pre-budget estimates).

---

| 20.3.2008 | EN | Official Journal of the European Union | C 74/15 |
| --- | --- | --- | --- |

20.3.2008

EN

Official Journal of the European Union

C 74/15

---

COUNCIL OPINION

of 4 March 2008

on the updated convergence programme of Denmark, 2007-2010

(2008/C 74/04)

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 9(3) thereof,

Having regard to the recommendation of the Commission,

After consulting the Economic and Financial Committee,

HAS DELIVERED THIS OPINION:

| (1) | On 4 March 2008, the Council examined the updated convergence programme of Denmark, which covers the period 2007 to 2010 (2) and gives further indications of developments towards 2015. |
| --- | --- |

(1)

On 4 March 2008, the Council examined the updated convergence programme of Denmark, which covers the period 2007 to 2010 (2) and gives further indications of developments towards 2015.

| (2) | In recent years, the Danish economy has been characterised by strong real GDP growth, sizeable employment gains, high capacity utilisation, low inflation and a stable exchange rate within the ERM II.
  Over the past year, however, capacity constraints have started to inhibit economic activity, and signs of increasing price and wage inflation have appeared. While the external balance still shows a surplus, the implication of mounting cost pressures and labour shortages for competitiveness is of rising concern. Public finances remain strong with sustained general government surpluses and a continued reduction of debt. The key challenge for fiscal policy at the current juncture is to maintain a prudent fiscal stance so as to avoid contributing to further labour market pressure. Ensuring that spending limits are adhered to represents an additional challenge, particularly in times of buoyant revenue, but is nevertheless important given the government's ambitions for ensuring fiscal sustainability. |
| --- | --- |

(2)

In recent years, the Danish economy has been characterised by strong real GDP growth, sizeable employment gains, high capacity utilisation, low inflation and a stable exchange rate within the ERM II.

Over the past year, however, capacity constraints have started to inhibit economic activity, and signs of increasing price and wage inflation have appeared. While the external balance still shows a surplus, the implication of mounting cost pressures and labour shortages for competitiveness is of rising concern. Public finances remain strong with sustained general government surpluses and a continued reduction of debt. The key challenge for fiscal policy at the current juncture is to maintain a prudent fiscal stance so as to avoid contributing to further labour market pressure. Ensuring that spending limits are adhered to represents an additional challenge, particularly in times of buoyant revenue, but is nevertheless important given the government's ambitions for ensuring fiscal sustainability.

| (3) | The programme envisages that the Danish economy is at the peak of its business cycle and is now facing a period of more moderate growth. Therefore, real GDP growth is expected to slow down from 2 % in 2007 to 1 % on average over the rest of the programme period. Assessed against currently available information (3), this scenario appears to be based on plausible growth assumptions in 2008 and cautious assumptions thereafter due to the underlying assumption in the update of a large positive output gap (calculated using a national methodology) (4) closing towards 2011. The programme's projections for wage and price inflation appear to be on the low side, particularly for 2009, in view of domestic wage pressures as well as global trends. However, price stability should be preserved throughout the programme period. |
| --- | --- |

(3)

The programme envisages that the Danish economy is at the peak of its business cycle and is now facing a period of more moderate growth. Therefore, real GDP growth is expected to slow down from 2 % in 2007 to 1 % on average over the rest of the programme period. Assessed against currently available information (3), this scenario appears to be based on plausible growth assumptions in 2008 and cautious assumptions thereafter due to the underlying assumption in the update of a large positive output gap (calculated using a national methodology) (4) closing towards 2011. The programme's projections for wage and price inflation appear to be on the low side, particularly for 2009, in view of domestic wage pressures as well as global trends. However, price stability should be preserved throughout the programme period.

| (4) | For 2007, the general government surplus is estimated at 4,0 % of GDP in the Commission services' autumn 2007 forecast, against a target of 2,8 % of GDP set in the previous update of the convergence programme. This over-performance reflects a significant positive base effect from 2006 due to stronger-than-expected employment growth and higher revenue from oil- and gas- related activities in the North Sea than anticipated.
  The current programme anticipates a surplus at 3,8 % of GDP, but in light of more recent information (5), revenue is likely to be higher than expected by 0,5 percentage point of GDP, and thus the surplus is likely to be revised upwards accordingly (to about 4,5 % of GDP). |
| --- | --- |

(4)

For 2007, the general government surplus is estimated at 4,0 % of GDP in the Commission services' autumn 2007 forecast, against a target of 2,8 % of GDP set in the previous update of the convergence programme. This over-performance reflects a significant positive base effect from 2006 due to stronger-than-expected employment growth and higher revenue from oil- and gas- related activities in the North Sea than anticipated.

The current programme anticipates a surplus at 3,8 % of GDP, but in light of more recent information (5), revenue is likely to be higher than expected by 0,5 percentage point of GDP, and thus the surplus is likely to be revised upwards accordingly (to about 4,5 % of GDP).

| (5) | Guided by the general objective of ensuring fiscal sustainability, the main goal of the budgetary strategy is to maintain high, although rapidly declining surpluses (from 3,8 % of GDP in 2007 to 3,0 % in 2008 and further to 1,2 % in 2010 (6)) against the background of weakening cyclical conditions. The medium-term objective (MTO) for the budgetary position is revised upwards (7) by 0,25 percentage point of GDP to a structural surplus (i.e. cyclically adjusted surpluses net of one-off and other temporary measures) of between 0,75 % and 1,75 % of GDP. The MTO will be fully respected throughout the programme period. The path for the headline surplus is broadly similar to the previous update, although starting from a higher surplus, against a broadly comparable macroeconomic background. The strategy relies on the continued application of the tax freeze (8) and expenditure restraint and envisages some tax cuts. The expenditure restraint is targeted through annual limits for real public consumption expenditure growth (becoming increasingly tight from 1,75 % in 2008 to 1 % in 2009-2010), and a cap on nominal public consumption expenditure at 26,5 % of cyclically-adjusted GDP towards 2015. The structural balance calculated according to the commonly agreed methodology is foreseen to remain broadly unchanged at 3,5 % in 2007-2008 and to drop to 2,5 % in 2009-2010 (9). The programme indicates lower surpluses towards 2015, as the effects of ageing are expected to set in and revenue sources in the North Sea are foreseen to subside. |
| --- | --- |

(5)

Guided by the general objective of ensuring fiscal sustainability, the main goal of the budgetary strategy is to maintain high, although rapidly declining surpluses (from 3,8 % of GDP in 2007 to 3,0 % in 2008 and further to 1,2 % in 2010 (6)) against the background of weakening cyclical conditions. The medium-term objective (MTO) for the budgetary position is revised upwards (7) by 0,25 percentage point of GDP to a structural surplus (i.e. cyclically adjusted surpluses net of one-off and other temporary measures) of between 0,75 % and 1,75 % of GDP. The MTO will be fully respected throughout the programme period. The path for the headline surplus is broadly similar to the previous update, although starting from a higher surplus, against a broadly comparable macroeconomic background. The strategy relies on the continued application of the tax freeze (8) and expenditure restraint and envisages some tax cuts. The expenditure restraint is targeted through annual limits for real public consumption expenditure growth (becoming increasingly tight from 1,75 % in 2008 to 1 % in 2009-2010), and a cap on nominal public consumption expenditure at 26,5 % of cyclically-adjusted GDP towards 2015. The structural balance calculated according to the commonly agreed methodology is foreseen to remain broadly unchanged at 3,5 % in 2007-2008 and to drop to 2,5 % in 2009-2010 (9). The programme indicates lower surpluses towards 2015, as the effects of ageing are expected to set in and revenue sources in the North Sea are foreseen to subside.

| (6) | The budgetary outcomes could be better than projected in the programme, particularly in view of the better-than-expected outcome for 2007 as indicated at the presentation of the 2008 draft budget bill on 5 February 2008. The good track record of sizable surpluses, often being revised upwards due to positive revenue surprises, and the cautious macro-economic outlook from 2009 outweigh the risk relating to the somewhat weaker performance in adhering to government consumption expenditure growth limits. |
| --- | --- |

(6)

The budgetary outcomes could be better than projected in the programme, particularly in view of the better-than-expected outcome for 2007 as indicated at the presentation of the 2008 draft budget bill on 5 February 2008. The good track record of sizable surpluses, often being revised upwards due to positive revenue surprises, and the cautious macro-economic outlook from 2009 outweigh the risk relating to the somewhat weaker performance in adhering to government consumption expenditure growth limits.

| (7) | In view of this risk assessment, the budgetary stance in the programme allows meeting the MTO by a wide margin throughout the programme period, as envisaged in the programme. The fiscal policy stance implied by the programme is broadly in line with the Stability and Growth Pact throughout the period. |
| --- | --- |

(7)

In view of this risk assessment, the budgetary stance in the programme allows meeting the MTO by a wide margin throughout the programme period, as envisaged in the programme. The fiscal policy stance implied by the programme is broadly in line with the Stability and Growth Pact throughout the period.

| (8) | Denmark appears to be at low risk with regard to the sustainability of public finances. The long-term budgetary impact of ageing is lower than on average in the EU, notably thanks to the pension reform included in the Welfare Agreement (10). Moreover, the budgetary position in 2007 as estimated in the programme, with a large structural surplus, contributes to the reduction of gross debt. Maintaining high primary surpluses over the medium term will further limit any risks to the sustainability of public finances |
| --- | --- |

(8)

Denmark appears to be at low risk with regard to the sustainability of public finances. The long-term budgetary impact of ageing is lower than on average in the EU, notably thanks to the pension reform included in the Welfare Agreement (10). Moreover, the budgetary position in 2007 as estimated in the programme, with a large structural surplus, contributes to the reduction of gross debt. Maintaining high primary surpluses over the medium term will further limit any risks to the sustainability of public finances

| (9) | The convergence programme seems to be consistent with the October 2007 implementation report of the national reform programme. Both the programme and the implementation report are based on the economic strategy ‘Towards new goals — Denmark 2015’, presented by the government in August 2007. Public finance effects of major reform measures such as the envisaged energy strategy and the so-called ‘Quality Fund’ for investments in public services (mainly healthcare, child care and care for the elderly) are explicitly taken into account. |
| --- | --- |

(9)

The convergence programme seems to be consistent with the October 2007 implementation report of the national reform programme. Both the programme and the implementation report are based on the economic strategy ‘Towards new goals — Denmark 2015’, presented by the government in August 2007. Public finance effects of major reform measures such as the envisaged energy strategy and the so-called ‘Quality Fund’ for investments in public services (mainly healthcare, child care and care for the elderly) are explicitly taken into account.

| (10) | As regards the data requirements specified in the code of conduct for stability and convergence programmes, the programme provides all required and most of the optional data (11). |
| --- | --- |

(10)

As regards the data requirements specified in the code of conduct for stability and convergence programmes, the programme provides all required and most of the optional data (11).

The overall conclusion is that the programme aims at maintaining a sound budgetary position fully respecting the MTO throughout the period, consistent with the objective of long-term fiscal sustainability. Foreseeing high, albeit rapidly declining, surpluses over the programme period, the budgetary targets appear to be on the cautious side, in view of the better-than-expected 2007 outcome and the most recent projections. The risk to long-term sustainability is assessed to be low. For the present, the most important policy challenge is to address labour shortages and looming cost pressures through a mix of structural and macroeconomic policies. Further measures need to be identified and implemented to stimulate labour supply. Meanwhile, the fiscal stance should be considered carefully so as to avoid pro-cyclicality. Therefore, containing public consumption expenditure growth, as foreseen in the programme, remains of high priority.

Comparison of key macroeconomic and budgetary projections

| | 2006 | 2007 | 2008 | 2009 | 2010 |
| --- | --- | --- | --- | --- | --- |
| Real GDP
  (% change) | CP Dec 2007 | 3,5 | 2,0 | 1,3 | 1,1 | 0,5 |
| COM Nov 2007 | 3,5 | 1,9 | 1,3 | 1,4 | n.a. |
| CP Dec 2006 | 2,7 | 2,0 | 0,7 | 0,7 | 0,6 |
| HICP inflation
  (%) | CP Dec 2007 | 1,9 | 1,7 | 2,4 | 1,6 | 1,9 |
| COM Nov 2007 | 1,9 | 1,7 | 2,4 | 2,4 | n.a. |
| CP Dec 2006 | 2,0 | 1,8 | 1,7 | 1,8 | 1,7 |
| Output gap (12)

  (% of potential GDP) | CP Dec 2007 | 1,2 | 1,0 | 0,3 | – 0,4 | – 1,5 |
| COM Nov 2007 (13) | 1,1 | 0,7 | – 0,2 | – 0,9 | n.a. |
| CP Dec 2006 | 0,9 | 0,9 | – 0,3 | – 1,3 | – 2,3 |
| Net lending/borrowing vis-à-vis the rest of the world
  (% of GDP) | CP Dec 2007 | 2,4 | 1,7 | 1,3 | 1,9 | 2,2 |
| COM Nov 2007 | 2,4 | 1,2 | 0,7 | 0,6 | n.a. |
| CP Dec 2006 | 1,6 | 1,7 | 1,3 | 1,2 | 1,3 |
| General government balance
  (% of GDP) | CP Dec 2007 | 4,6 | 3,8 | 3,0 | 2,0 | 1,2 |
| COM Nov 2007 | 4,6 | 4,0 | 3,0 | 2,5 | n.a. |
| CP Dec 2006 | 3,1 | 2,8 | 2,5 | 1,8 | 1,2 |
| Primary balance
  (% of GDP) | CP Dec 2007 | 6,2 | 5,2 | 4,2 | 3,0 | 2,1 |
| COM Nov 2007 | 6,2 | 5,3 | 4,3 | 3,6 | n.a. |
| CP Dec 2006 | 4,7 | 4,3 | 3,3 | 2,5 | 1,8 |
| Cyclically-adjusted balance (12)

  (% of GDP) | CP Dec 2007 | 3,8 | 3,1 | 2,8 | 2,3 | 2,2 |
| COM Nov 2007 | 3,9 | 3,6 | 3,2 | 3,0 | n.a. |
| CP Dec 2006 | 2,5 | 2,2 | 2,7 | 2,6 | 2,7 |
| Structural balance (14)

  (% of GDP) | CP Dec 2007 | 2,7 | 3,5 | 3,4 | 2,5 | 2,5 |
| COM Nov 2007 | 3,6 | 3,2 | 3,4 | 3,0 | n.a. |
| CP Dec 2006 | 2,2 | 1,9 | 2,7 | 2,6 | 2,7 |
| Government gross debt
  (% of GDP) | CP Dec 2007 | 30,1 | 25,6 | 21,6 | 19,2 | 18,6 |
| COM Nov 2007 | 30,3 | 25,0 | 20,9 | 17,5 | n.a. |
| CP Dec 2006 | 29,8 | 25,8 | 22,7 | 20,5 | 19,0 |
| Convergence programme (CP); Commission services' autumn 2007 economic forecasts (COM); Commission services' calculations. |

2006

2007

2008

2009

2010

Real GDP

(% change)

CP Dec 2007

3,5

2,0

1,3

1,1

0,5

COM Nov 2007

3,5

1,9

1,3

1,4

n.a.

CP Dec 2006

2,7

2,0

0,7

0,7

0,6

HICP inflation

(%)

CP Dec 2007

1,9

1,7

2,4

1,6

1,9

COM Nov 2007

1,9

1,7

2,4

2,4

n.a.

CP Dec 2006

2,0

1,8

1,7

1,8

1,7

Output gap (12)

(% of potential GDP)

CP Dec 2007

1,2

1,0

0,3

– 0,4

– 1,5

COM Nov 2007 (13)

1,1

0,7

– 0,2

– 0,9

n.a.

CP Dec 2006

0,9

0,9

– 0,3

– 1,3

– 2,3

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

(% of GDP)

CP Dec 2007

2,4

1,7

1,3

1,9

2,2

COM Nov 2007

2,4

1,2

0,7

0,6

n.a.

CP Dec 2006

1,6

1,7

1,3

1,2

1,3

General government balance

(% of GDP)

CP Dec 2007

4,6

3,8

3,0

2,0

1,2

COM Nov 2007

4,6

4,0

3,0

2,5

n.a.

CP Dec 2006

3,1

2,8

2,5

1,8

1,2

Primary balance

(% of GDP)

CP Dec 2007

6,2

5,2

4,2

3,0

2,1

COM Nov 2007

6,2

5,3

4,3

3,6

n.a.

CP Dec 2006

4,7

4,3

3,3

2,5

1,8

Cyclically-adjusted balance (12)

(% of GDP)

CP Dec 2007

3,8

3,1

2,8

2,3

2,2

COM Nov 2007

3,9

3,6

3,2

3,0

n.a.

CP Dec 2006

2,5

2,2

2,7

2,6

2,7

Structural balance (14)

(% of GDP)

CP Dec 2007

2,7

3,5

3,4

2,5

2,5

COM Nov 2007

3,6

3,2

3,4

3,0

n.a.

CP Dec 2006

2,2

1,9

2,7

2,6

2,7

Government gross debt

(% of GDP)

CP Dec 2007

30,1

25,6

21,6

19,2

18,6

COM Nov 2007

30,3

25,0

20,9

17,5

n.a.

CP Dec 2006

29,8

25,8

22,7

20,5

19,0

Convergence programme (CP); Commission services' autumn 2007 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://ec.europa.eu/economy_finance/about/activities/sgp/main_en.htm

(2)  The update was submitted more than 3 weeks beyond the 1 December deadline set in the code of conduct in view of the formation of a new government following the November general elections.

(3)  The assessment takes into account notably the Commission services' autumn 2007 forecast and the Commission assessment of the October 2007 implementation report of the national reform programme.

(4)  Using the national methodology, different from the commonly agreed methodology, leads to higher output gaps (due to a lower estimate of potential growth).

(5)  The Budget Outlook accompanying the draft budget bill presented on 5 February 2008.

(6)  In the forecast accompanying the new draft budget bill for 2008, published by the Danish Ministry of Finance on 5 February 2008, surpluses are revised upwards to 4,4 % of GDP in 2007, 3,7 % in 2008 and 2,7 % in 2009.

(7)  This is due to the assumed continued suspension beyond 2008 of the ‘special pension contribution’, which previously generated an income tax deduction for private pension savings in the order of 0,25 % of GDP. It is therefore planned to increase the MTO by the resulting increase in tax revenue.

(8)  The tax freeze implies that from 2002 onwards, neither direct nor indirect tax rates can be raised, whether defined in nominal or percentage terms.

(9)  Differences in the definition of one-offs and temporary measures imply that estimates for the structural balance are not readily comparable with the Commission services' projections.

(10)  The ‘Agreement on Future Prosperity, Welfare and Investments in the Future’, concluded by the government in June 2006, raises the standard retirement age from 65 to 67 years and the early retirement age from 60 to 62 years over the next 20 years. From 2025 age limits will be indexed to changes in life expectancy.

(11)  However, total revenue and total expenditure figures and some subcomponents do not correspond to the harmonised definitions. The specifications of the stock-flow adjustments are missing among the optional data.

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

(13)  Based on estimated potential growth of 2,2 %, 2,3 %, 2,2 % and 2,0 % respectively in the period 2006-2009.

(14)  Cyclically-adjusted balance excluding one-off and other temporary measures. One-off and other temporary measures are 1,1 % of GDP in 2006 (surplus-increasing) and 0,4 %, 0,6 %, 0,2 % and 0,3 % of GDP respectively in the period 2007-2010 (all surplus-reducing) according to the most recent programme and 0,3 % of GDP in both 2006 and 2007 (surplus-increasing) and 0,2 % in 2008 (surplus-reducing) in the Commission services' autumn forecast. However, the programme uses a different definition of a one-off measure, as the temporary variations in revenue identified in the programme are not considered as one-offs by the Commission services.

Sources:

Convergence programme (CP); Commission services' autumn 2007 economic forecasts (COM); Commission services' calculations.

---

| 20.3.2008 | EN | Official Journal of the European Union | C 74/19 |
| --- | --- | --- | --- |

20.3.2008

EN

Official Journal of the European Union

C 74/19

---

COUNCIL OPINION

of 4 March 2008

on the updated convergence programme of Lithuania, 2007-2010

(2008/C 74/05)

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 9(3) thereof,

Having regard to the recommendation of the Commission,

After consulting the Economic and Financial Committee,

HAS DELIVERED THIS OPINION:

| (1) | On 4 March 2008, the Council examined the updated convergence programme of Lithuania, which covers the period 2007 to 2010 (2). |
| --- | --- |

(1)

On 4 March 2008, the Council examined the updated convergence programme of Lithuania, which covers the period 2007 to 2010 (2).

| (2) | Over the past several years, Lithuania has been experiencing a period of strong growth primarily driven by domestic demand. Monetary conditions have been accommodative, given a high degree of euroisation in the framework of a currency board arrangement within ERM II.
  In the absence of sufficient measures to curb excessive domestic lending, rapid credit expansion facilitated by financial deepening has boosted private consumption and real estate investment. However, capacity constraints have emerged as emigration and high economic growth have led to labour shortages, aggravated by skill mismatches and low participation rates, and increasing costs. Increasingly rapid wage growth outstripping productivity is leading to rapid inflation and declining price competitiveness. Even though export performance remains robust, the external deficit has widened rapidly as strong domestic demand has led to high import growth and external vulnerability has increased. In this context fiscal policy has not responded to the rising macroeconomic imbalances: the general government balance has remained in deficit and, in the absence of binding medium-term expenditure ceilings, better-than expected revenues have been systematically spent. Tax incentives and exemptions have been contributing to the real estate boom and thus added to overheating, though more recently the ongoing tightening of credit conditions is supportive of the necessary adjustment. A tighter fiscal stance and structural reforms in the labour market and educational system, further strengthening the supply-side, will be major contributors to addressing internal and external imbalances and attracting inward investment, thus ensuring a sustainable catching-up process. This is particularly important given the limited number of policy instruments available to Lithuania in the context of the constraints implied by its monetary policy regime. |
| --- | --- |

(2)

Over the past several years, Lithuania has been experiencing a period of strong growth primarily driven by domestic demand. Monetary conditions have been accommodative, given a high degree of euroisation in the framework of a currency board arrangement within ERM II.

In the absence of sufficient measures to curb excessive domestic lending, rapid credit expansion facilitated by financial deepening has boosted private consumption and real estate investment. However, capacity constraints have emerged as emigration and high economic growth have led to labour shortages, aggravated by skill mismatches and low participation rates, and increasing costs. Increasingly rapid wage growth outstripping productivity is leading to rapid inflation and declining price competitiveness. Even though export performance remains robust, the external deficit has widened rapidly as strong domestic demand has led to high import growth and external vulnerability has increased. In this context fiscal policy has not responded to the rising macroeconomic imbalances: the general government balance has remained in deficit and, in the absence of binding medium-term expenditure ceilings, better-than expected revenues have been systematically spent. Tax incentives and exemptions have been contributing to the real estate boom and thus added to overheating, though more recently the ongoing tightening of credit conditions is supportive of the necessary adjustment. A tighter fiscal stance and structural reforms in the labour market and educational system, further strengthening the supply-side, will be major contributors to addressing internal and external imbalances and attracting inward investment, thus ensuring a sustainable catching-up process. This is particularly important given the limited number of policy instruments available to Lithuania in the context of the constraints implied by its monetary policy regime.

| (3) | The macroeconomic scenario underlying the programme envisages real GDP growth reaching 9,8 % in 2007 and declining relatively sharply thereafter to 5,3 % in 2008 and to 4,8 % per annum on average over the rest of the programme period. Domestic demand is expected to slow but to remain the main driver for growth. Assessed against currently available information (3), this scenario appears cautious. This is particularly so in 2008 given recent momentum. Some discrepancies, including between the widening of external imbalances and the strong slowdown of domestic demand, are not explained in the programme.
  The programme projects inflation to increase from 5,8 % in 2007 to 6,5 % in 2008 before falling to 5,1 % in 2009 and 3,6 % in 2010 showing very little progress towards convergence. Moreover, in view of food price trends, planned gas price increases (explicitly recognised in the programme and estimated at 1,5 % in 2008 but not incorporated into its 2008 inflation projection) and wage increases far above productivity growth, underlining the danger of exacerbating the wage-price spiral, serious upside risks to these projections are evident. Widening external imbalances, if materialising as foreseen by the programme, would increase the economy's external vulnerability. However, recent price and wage developments pointing to the danger of deteriorating competitiveness could themselves result in a worsening external position. |
| --- | --- |

(3)

The macroeconomic scenario underlying the programme envisages real GDP growth reaching 9,8 % in 2007 and declining relatively sharply thereafter to 5,3 % in 2008 and to 4,8 % per annum on average over the rest of the programme period. Domestic demand is expected to slow but to remain the main driver for growth. Assessed against currently available information (3), this scenario appears cautious. This is particularly so in 2008 given recent momentum. Some discrepancies, including between the widening of external imbalances and the strong slowdown of domestic demand, are not explained in the programme.

The programme projects inflation to increase from 5,8 % in 2007 to 6,5 % in 2008 before falling to 5,1 % in 2009 and 3,6 % in 2010 showing very little progress towards convergence. Moreover, in view of food price trends, planned gas price increases (explicitly recognised in the programme and estimated at 1,5 % in 2008 but not incorporated into its 2008 inflation projection) and wage increases far above productivity growth, underlining the danger of exacerbating the wage-price spiral, serious upside risks to these projections are evident. Widening external imbalances, if materialising as foreseen by the programme, would increase the economy's external vulnerability. However, recent price and wage developments pointing to the danger of deteriorating competitiveness could themselves result in a worsening external position.

| (4) | For 2007, the general government deficit is estimated at 0,9 % of GDP in the most recent update of the convergence programme, identical to the target set in the previous update in spite of a much better-than-expected performance in 2006. The favourable base effect of some 0,6 % of GDP was offset by a one-off measure of similar magnitude (4). Similarly to the practice of some previous years, additional revenues on the back of higher-than-anticipated economic growth were spent, in 2007 mainly by the Social Security Fund and for national co-financing of EU-supported projects. Budgetary implementation in 2007 was not in line with the invitation in the Council opinion of 27 February 2007 on the previous update of the convergence programme (5) as the economic good times and lower-than-targeted deficit in 2006 did not lead to a more demanding deficit target for the year. Further, even though the medium-term objective (MTO) of a structural deficit (i.e. cyclically-adjusted deficit net of one-off and other temporary measures) of 1 % of GDP was just reached in 2006, there was a small slippage from the MTO in 2007, by about 0,25 % of GDP. |
| --- | --- |

(4)

For 2007, the general government deficit is estimated at 0,9 % of GDP in the most recent update of the convergence programme, identical to the target set in the previous update in spite of a much better-than-expected performance in 2006. The favourable base effect of some 0,6 % of GDP was offset by a one-off measure of similar magnitude (4). Similarly to the practice of some previous years, additional revenues on the back of higher-than-anticipated economic growth were spent, in 2007 mainly by the Social Security Fund and for national co-financing of EU-supported projects. Budgetary implementation in 2007 was not in line with the invitation in the Council opinion of 27 February 2007 on the previous update of the convergence programme (5) as the economic good times and lower-than-targeted deficit in 2006 did not lead to a more demanding deficit target for the year. Further, even though the medium-term objective (MTO) of a structural deficit (i.e. cyclically-adjusted deficit net of one-off and other temporary measures) of 1 % of GDP was just reached in 2006, there was a small slippage from the MTO in 2007, by about 0,25 % of GDP.

| (5) | The main goal of the medium-term budgetary strategy is to foster macroeconomic stability via a tighter fiscal policy. Compared to the previous update, the target year for achieving the MTO has been postponed by one year from 2008 to 2009 despite a broadly unchanged macroeconomic scenario. However, applying the common methodology to the information in the programme suggest the MTO could be reached from 2008. The programme targets a gradual improvement of the headline general government balance from a deficit of 0,9 % of GDP in 2007 to a surplus of 0,8 % in 2010. The structural balance calculated according to the commonly agreed methodology is projected to improve from a deficit of 1,25 % of GDP in 2007 to a surplus of 1 % in 2010, with the main adjustment effort back-loaded to after 2008. On the back of relatively strong economic growth, the adjustment is planned to be achieved through a greater increase in the revenue-to-GDP ratio than in the expenditure-to-GDP ratio (3,9 percentage points compared to 2,2 percentage points respectively). Despite further direct tax cuts, revenues are expected to increase on the basis of higher EU funds inflows, increases in excise duties and a further considerable improvement in tax collection. On the expenditure side, the increase stems from significantly higher social payments and rising public investment, the latter mainly supported by EU funds. The adoption in November 2007 of the Law on Fiscal Discipline aimed at providing a firm commitment to fiscal restraint. The law, effective from the beginning of 2008, states that general government finances should be managed to achieve budgetary positions close to balance or in surplus and aims to impose expenditure restraint to this end. However, the law is focused on annual budgetary preparation and execution and does not as such introduce a forward-looking medium-term budgetary framework, which needs to be enhanced. |
| --- | --- |

(5)

The main goal of the medium-term budgetary strategy is to foster macroeconomic stability via a tighter fiscal policy. Compared to the previous update, the target year for achieving the MTO has been postponed by one year from 2008 to 2009 despite a broadly unchanged macroeconomic scenario. However, applying the common methodology to the information in the programme suggest the MTO could be reached from 2008. The programme targets a gradual improvement of the headline general government balance from a deficit of 0,9 % of GDP in 2007 to a surplus of 0,8 % in 2010. The structural balance calculated according to the commonly agreed methodology is projected to improve from a deficit of 1,25 % of GDP in 2007 to a surplus of 1 % in 2010, with the main adjustment effort back-loaded to after 2008. On the back of relatively strong economic growth, the adjustment is planned to be achieved through a greater increase in the revenue-to-GDP ratio than in the expenditure-to-GDP ratio (3,9 percentage points compared to 2,2 percentage points respectively). Despite further direct tax cuts, revenues are expected to increase on the basis of higher EU funds inflows, increases in excise duties and a further considerable improvement in tax collection. On the expenditure side, the increase stems from significantly higher social payments and rising public investment, the latter mainly supported by EU funds. The adoption in November 2007 of the Law on Fiscal Discipline aimed at providing a firm commitment to fiscal restraint. The law, effective from the beginning of 2008, states that general government finances should be managed to achieve budgetary positions close to balance or in surplus and aims to impose expenditure restraint to this end. However, the law is focused on annual budgetary preparation and execution and does not as such introduce a forward-looking medium-term budgetary framework, which needs to be enhanced.

| (6) | The budgetary outcomes could be worse than projected in the programme. Despite the programme's particularly cautious projection of real and nominal output growth from 2008 onwards, the projected revenue increase seems substantial: even with a more favourable macroeconomic growth scenario, the revenue projection appears on the high side, especially taking into account the impact of further direct tax reductions and its reliance on improved tax collection. The large increase in the ratio of non-tax revenues to GDP, partly related to EU funds, is insufficiently articulated in the programme while the expected results from improved tax collection appear optimistic. Moreover, the numerous expenditure-increasing measures together with the need to strengthen the medium-term framework for the planning and control of public finances imply a risk that expenditure will continue to exceed previously set ceilings. If the economic slowdown proves to be severe or protracted, producing a rapid fall in revenue growth, this would exert greater pressure on the budget. |
| --- | --- |

(6)

The budgetary outcomes could be worse than projected in the programme. Despite the programme's particularly cautious projection of real and nominal output growth from 2008 onwards, the projected revenue increase seems substantial: even with a more favourable macroeconomic growth scenario, the revenue projection appears on the high side, especially taking into account the impact of further direct tax reductions and its reliance on improved tax collection. The large increase in the ratio of non-tax revenues to GDP, partly related to EU funds, is insufficiently articulated in the programme while the expected results from improved tax collection appear optimistic. Moreover, the numerous expenditure-increasing measures together with the need to strengthen the medium-term framework for the planning and control of public finances imply a risk that expenditure will continue to exceed previously set ceilings. If the economic slowdown proves to be severe or protracted, producing a rapid fall in revenue growth, this would exert greater pressure on the budget.

| (7) | In view of this risk assessment, the budgetary stance in the programme seems insufficient to ensure that the MTO is achieved by 2009, as envisaged in the programme. In particular, there could be deterioration in the structural balance in 2008, because of the planned revenue-decreasing and expenditure-increasing measures, whereas Lithuania, which currently enjoys strong growth, should pursue an effort above the 0,5 % of GDP benchmark for the annual structural improvement. The pace of adjustment towards the MTO implied by the programme should thus be strengthened, especially in 2008, to be in line with the Stability and Growth Pact. After the projected achievement of the MTO, the fiscal policy stance implied by the programme is in line with the Stability and Growth Pact. However, given persisting external and domestic pressures, a tighter fiscal policy than currently planned would be appropriate. |
| --- | --- |

(7)

In view of this risk assessment, the budgetary stance in the programme seems insufficient to ensure that the MTO is achieved by 2009, as envisaged in the programme. In particular, there could be deterioration in the structural balance in 2008, because of the planned revenue-decreasing and expenditure-increasing measures, whereas Lithuania, which currently enjoys strong growth, should pursue an effort above the 0,5 % of GDP benchmark for the annual structural improvement. The pace of adjustment towards the MTO implied by the programme should thus be strengthened, especially in 2008, to be in line with the Stability and Growth Pact. After the projected achievement of the MTO, the fiscal policy stance implied by the programme is in line with the Stability and Growth Pact. However, given persisting external and domestic pressures, a tighter fiscal policy than currently planned would be appropriate.

| (8) | Lithuania appears to be at low risk with regard to the sustainability of public finances. The long-term budgetary impact of ageing is lower than the EU average, with a limited increase in pension expenditure over the coming decades, influenced by the pension reforms already enacted. The current level of gross debt is very low and the initial budgetary position in 2007 as estimated in the programme, which is better than the starting position of the previous programme, would contribute to containing the risks to the long-term sustainability of public finances. |
| --- | --- |

(8)

Lithuania appears to be at low risk with regard to the sustainability of public finances. The long-term budgetary impact of ageing is lower than the EU average, with a limited increase in pension expenditure over the coming decades, influenced by the pension reforms already enacted. The current level of gross debt is very low and the initial budgetary position in 2007 as estimated in the programme, which is better than the starting position of the previous programme, would contribute to containing the risks to the long-term sustainability of public finances.

| (9) | The convergence programme seems to be consistent to some extent with the October 2007 implementation report of the national reform programme. The measures in the area of public finances envisaged in the convergence programme seem to be in line with those foreseen in the national reform programme. In particular, both programmes cover the ongoing pension, healthcare and tax reforms. Information provided in both programmes on the direct budgetary costs associated with the healthcare and education reforms are insufficient, while the convergence programme provides more detailed information on other reform areas. However, a qualitative assessment of the overall impact of the national reform programme within the medium-term fiscal strategy is lacking. |
| --- | --- |

(9)

The convergence programme seems to be consistent to some extent with the October 2007 implementation report of the national reform programme. The measures in the area of public finances envisaged in the convergence programme seem to be in line with those foreseen in the national reform programme. In particular, both programmes cover the ongoing pension, healthcare and tax reforms. Information provided in both programmes on the direct budgetary costs associated with the healthcare and education reforms are insufficient, while the convergence programme provides more detailed information on other reform areas. However, a qualitative assessment of the overall impact of the national reform programme within the medium-term fiscal strategy is lacking.

| (10) | The budgetary strategy in the programme is partly consistent with the country-specific broad economic policy guidelines included in the integrated guidelines in the area of budgetary policies issued in the context of the Lisbon strategy. However, the projected fiscal stance does not contribute adequately to improving macroeconomic stability and containing inflationary pressures. |
| --- | --- |

(10)

The budgetary strategy in the programme is partly consistent with the country-specific broad economic policy guidelines included in the integrated guidelines in the area of budgetary policies issued in the context of the Lisbon strategy. However, the projected fiscal stance does not contribute adequately to improving macroeconomic stability and containing inflationary pressures.

| (11) | Upon entry into the ERM II mechanism, Lithuania undertook commitments related to fiscal policy, the financial sector and structural policies. Concerning progress in implementing these commitments, the authorities have insufficiently strengthened the fiscal stance and although measures to improve the quality of lending have been taken, efforts to restrain credit growth have been limited. Despite the rapid economic growth of recent years, the government has not achieved a balanced budget, budgetary targets have been unambitious and windfall revenues mainly spent. The medium-term budgetary strategy needs to be strengthened. To curb credit growth, high reserve requirements have been maintained, vigilant financial supervision has been continued and the compulsory reserve base has been extended; however, the direct impact has been limited. The anti-inflation initiatives announced by the government in March and December 2007 were steps into the right direction, but have so far led to few concrete measures and have had a limited impact on inflation. A number of structural reforms are ongoing, but further efforts are needed in the fields of education, labour market and to attract inward investment. |
| --- | --- |

(11)

Upon entry into the ERM II mechanism, Lithuania undertook commitments related to fiscal policy, the financial sector and structural policies. Concerning progress in implementing these commitments, the authorities have insufficiently strengthened the fiscal stance and although measures to improve the quality of lending have been taken, efforts to restrain credit growth have been limited. Despite the rapid economic growth of recent years, the government has not achieved a balanced budget, budgetary targets have been unambitious and windfall revenues mainly spent. The medium-term budgetary strategy needs to be strengthened. To curb credit growth, high reserve requirements have been maintained, vigilant financial supervision has been continued and the compulsory reserve base has been extended; however, the direct impact has been limited. The anti-inflation initiatives announced by the government in March and December 2007 were steps into the right direction, but have so far led to few concrete measures and have had a limited impact on inflation. A number of structural reforms are ongoing, but further efforts are needed in the fields of education, labour market and to attract inward investment.

| (12) | As regards the data requirements specified in the code of conduct for stability and convergence programmes, the programme provides all required and most optional data (6). |
| --- | --- |

(12)

As regards the data requirements specified in the code of conduct for stability and convergence programmes, the programme provides all required and most optional data (6).

The overall conclusion is that the programme aims at tackling Lithuania's macroeconomic imbalances by tightening fiscal policy. However, the budgetary targets seem modest in the light of the current high economic growth. The programme envisages only a back-loaded adjustment effort so that the MTO is reached only in 2009. There are risks to the achievement of the budgetary targets as the consolidation is insufficiently backed by announced measures while there is a need to strengthen the medium-term framework. The revenue projections seem optimistic given the further planned direct tax cuts and a reliance on improved tax collection and the cautious macroeconomic scenario counterbalances them only partially. A significantly tighter fiscal policy than foreseen in the programme and further structural policy measures are needed to address mounting inflationary pressures, maintain competitiveness and tackle remaining bottlenecks in the labour market, crucial also for sustaining catching-up. As regards the long-term sustainability of public finances Lithuania remains at low risk.

In view of the above assessment and also given the need to ensure sustainable convergence and a smooth participation in ERM II, Lithuania is invited to contribute to reducing overheating pressures by:

| (i) | aiming for significantly better budgetary outturns in 2008 and thereafter than foreseen in the programme, notably by restraining expenditure growth, saving windfall revenues and reinforcing the binding character of the medium-term expenditure ceilings; |
| --- | --- |

(i)

aiming for significantly better budgetary outturns in 2008 and thereafter than foreseen in the programme, notably by restraining expenditure growth, saving windfall revenues and reinforcing the binding character of the medium-term expenditure ceilings;

| (ii) | tackling inflationary pressures including by promoting wage setting in line with overall productivity gains and adopting structural measures to remove labour market bottlenecks. |
| --- | --- |

(ii)

tackling inflationary pressures including by promoting wage setting in line with overall productivity gains and adopting structural measures to remove labour market bottlenecks.

Lithuania is also invited to improve compliance with the submission deadline for stability and convergence programmes specified in the code of conduct.

Comparison of key macroeconomic and budgetary projections

| | 2006 | 2007 | 2008 | 2009 | 2010 |
| --- | --- | --- | --- | --- | --- |
| Real GDP
  (% change) | CP Dec 2007 | 7,7 | 9,8 | 5,3 | 4,5 | 5,2 |
| COM Nov 2007 | 7,7 | 8,5 | 7,5 | 6,3 | n.a. |
| CP Dec 2006 | 7,8 | 6,3 | 5,3 | 4,5 | n.a. |
| HICP inflation
  (%) | CP Dec 2007 | 3,8 | 5,8 | 6,5 | 5,1 | 3,6 |
| COM Nov 2007 | 3,8 | 5,6 | 6,5 | 5,2 | n.a. |
| CP Dec 2006 | 3,9 | 4,7 | 3,4 | 3,1 | n.a. |
| Output gap (7)

  (% of potential GDP) | CP Dec 2007 | 1,7 | 3,3 | 1,5 | – 0,4 | – 1,3 |
| COM Nov 2007 (8) | 1,0 | 1,0 | 0,4 | – 0,6 | n.a. |
| CP Dec 2006 | 2,4 | 1,6 | 0,1 | – 1,9 | n.a. |
| Net lending/borrowing vis-à-vis the rest of the world
  (% of GDP) | CP Dec 2007 | – 9,5 | – 12,5 | – 12,7 | – 14,5 | – 15,4 |
| COM Nov 2007 | – 8,9 | – 12,5 | – 12,9 | – 13,0 | n.a. |
| CP Dec 2006 | – 6,6 | – 7,5 | – 7,0 | n.a. | n.a. |
| General government balance
  (% of GDP) | CP Dec 2007 | – 0,6 | – 0,9 | – 0,5 | 0,2 | 0,8 |
| COM Nov 2007 | – 0,6 | – 0,9 | – 1,4 | – 0,8 | n.a. |
| CP Dec 2006 | – 1,2 | – 0,9 | – 0,5 | 0,0 | n.a. |
| Primary balance
  (% of GDP) | CP Dec 2007 | 0,2 | – 0,1 | 0,3 | 0,9 | 1,4 |
| COM Nov 2007 | 0,2 | 0,0 | – 0,5 | 0,2 | n.a. |
| CP Dec 2006 | – 0,4 | 0,0 | 0,4 | 0,8 | n.a. |
| Cyclically-adjusted balance (7)

  (% of GDP) | CP Dec 2007 | – 1,0 | – 1,8 | – 0,9 | 0,3 | 1,1 |
| COM Nov 2007 | – 0,8 | – 1,2 | – 1,5 | – 0,6 | n.a. |
| CP Dec 2006 | – 1,8 | – 1,3 | – 0,5 | 0,5 | n.a. |
| Structural balance (9)

  (% of GDP) | CP Dec 2007 | – 1,0 | – 1,2 | – 0,9 | 0,3 | 1,1 |
| COM Nov 2007 | – 0,8 | – 1,2 | – 1,5 | – 0,6 | n.a. |
| CP Dec 2006 | – 1,8 | – 1,3 | – 0,5 | 0,5 | n.a. |
| Government gross debt
  (% of GDP) | CP Dec 2007 | 18,2 | 17,6 | 17,2 | 15,0 | 14,0 |
| COM Nov 2007 | 18,2 | 17,7 | 17,2 | 16,1 | n.a. |
| CP Dec 2006 | 18,4 | 19,2 | 19,0 | 17,7 | n.a. |
| Convergence programme (CP); Commission services' autumn 2007 economic forecasts (COM); Commission services' calculations. |

2006

2007

2008

2009

2010

Real GDP

(% change)

CP Dec 2007

7,7

9,8

5,3

4,5

5,2

COM Nov 2007

7,7

8,5

7,5

6,3

n.a.

CP Dec 2006

7,8

6,3

5,3

4,5

n.a.

HICP inflation

(%)

CP Dec 2007

3,8

5,8

6,5

5,1

3,6

COM Nov 2007

3,8

5,6

6,5

5,2

n.a.

CP Dec 2006

3,9

4,7

3,4

3,1

n.a.

Output gap (7)

(% of potential GDP)

CP Dec 2007

1,7

3,3

1,5

– 0,4

– 1,3

COM Nov 2007 (8)

1,0

1,0

0,4

– 0,6

n.a.

CP Dec 2006

2,4

1,6

0,1

– 1,9

n.a.

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

(% of GDP)

CP Dec 2007

– 9,5

– 12,5

– 12,7

– 14,5

– 15,4

COM Nov 2007

– 8,9

– 12,5

– 12,9

– 13,0

n.a.

CP Dec 2006

– 6,6

– 7,5

– 7,0

n.a.

n.a.

General government balance

(% of GDP)

CP Dec 2007

– 0,6

– 0,9

– 0,5

0,2

0,8

COM Nov 2007

– 0,6

– 0,9

– 1,4

– 0,8

n.a.

CP Dec 2006

– 1,2

– 0,9

– 0,5

0,0

n.a.

Primary balance

(% of GDP)

CP Dec 2007

0,2

– 0,1

0,3

0,9

1,4

COM Nov 2007

0,2

0,0

– 0,5

0,2

n.a.

CP Dec 2006

– 0,4

0,0

0,4

0,8

n.a.

Cyclically-adjusted balance (7)

(% of GDP)

CP Dec 2007

– 1,0

– 1,8

– 0,9

0,3

1,1

COM Nov 2007

– 0,8

– 1,2

– 1,5

– 0,6

n.a.

CP Dec 2006

– 1,8

– 1,3

– 0,5

0,5

n.a.

Structural balance (9)

(% of GDP)

CP Dec 2007

– 1,0

– 1,2

– 0,9

0,3

1,1

COM Nov 2007

– 0,8

– 1,2

– 1,5

– 0,6

n.a.

CP Dec 2006

– 1,8

– 1,3

– 0,5

0,5

n.a.

Government gross debt

(% of GDP)

CP Dec 2007

18,2

17,6

17,2

15,0

14,0

COM Nov 2007

18,2

17,7

17,2

16,1

n.a.

CP Dec 2006

18,4

19,2

19,0

17,7

n.a.

Convergence programme (CP); Commission services' autumn 2007 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://ec.europa.eu/economy_finance/about/activities/sgp/main_en.htm

(2)  The update was submitted 4 weeks beyond the 1 December deadline set in the code of conduct.

(3)  The assessment takes into account notably the Commission services' autumn 2007 forecast and the Commission assessment of the October 2007 implementation report of the national reform programme.

(4)  The one-off measure relates to compensation of partly unpaid pensions in 1995-2002 that follows a Constitutional Court decision and was adopted by the government in November 2007. This operation was decided after the cut-off date of the Commission services' autumn 2007 forecasts, hence the estimated outturn for 2007 cannot be compared with that in the programme.

(5)  OJ C 71, 28.3.2007, p. 19.

(6)  In particular, the data on the subcomponents of the stock-flow adjustment, estimates of the contributions to potential growth and some data on long-term sustainability are not provided.

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

(8)  Based on estimated potential growth of 7,9 %, 8,4 %, 8,2 % and 7,4 % respectively in the period 2006-2009.

(9)  Cyclically-adjusted balance excluding one-off and other temporary measures. One-off and other temporary measures are 0,6 % of GDP in 2007 (deficit-increasing) according to the most recent programme. As this transaction was decided after the cut-off date of the autumn 2007 forecast, it is not reflected in the Commission services' autumn forecast.

Sources:

Convergence programme (CP); Commission services' autumn 2007 economic forecasts (COM); Commission services' calculations.

---

| 20.3.2008 | EN | Official Journal of the European Union | C 74/24 |
| --- | --- | --- | --- |

20.3.2008

EN

Official Journal of the European Union

C 74/24

---

COUNCIL OPINION

of 4 March 2008

on the updated convergence programme of the Czech Republic, 2007-2010

(2008/C 74/06)

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 9(3) thereof,

Having regard to the recommendation of the Commission,

After consulting the Economic and Financial Committee,

HAS DELIVERED THIS OPINION:

| (1) | On 4 March 2008, the Council examined the updated convergence programme of the Czech Republic, which covers the period 2007 to 2010. |
| --- | --- |

(1)

On 4 March 2008, the Council examined the updated convergence programme of the Czech Republic, which covers the period 2007 to 2010.

| (2) | The Czech Republic is experiencing a period of high growth which is expected to moderate in the medium term. The recent sharp fall in unemployment can be mainly accounted for by cyclical factors. Structural rigidities still appear to remain in the labour market, indicated by a high level of vacancies, evidence of skills mismatches, and regional disparities in unemployment, which will need to be addressed by future employment policy.
  The stabilisation programme adopted in 2007 appears to be a step in the right direction while further measures will be necessary to continue fiscal consolidation. Notably, risks remain with respect to long-term sustainability of public finances, given the ageing population and current state of pension and health care systems. A well-devised pension reform could also have a positive impact on potential growth. While taking into consideration the good track record of the Czech Republic, inflationary pressures are set to increase due to rises in indirect taxation and rising international commodity prices. |
| --- | --- |

(2)

The Czech Republic is experiencing a period of high growth which is expected to moderate in the medium term. The recent sharp fall in unemployment can be mainly accounted for by cyclical factors. Structural rigidities still appear to remain in the labour market, indicated by a high level of vacancies, evidence of skills mismatches, and regional disparities in unemployment, which will need to be addressed by future employment policy.

The stabilisation programme adopted in 2007 appears to be a step in the right direction while further measures will be necessary to continue fiscal consolidation. Notably, risks remain with respect to long-term sustainability of public finances, given the ageing population and current state of pension and health care systems. A well-devised pension reform could also have a positive impact on potential growth. While taking into consideration the good track record of the Czech Republic, inflationary pressures are set to increase due to rises in indirect taxation and rising international commodity prices.

| (3) | The convergence programme estimates GDP growth to be about 6 % in 2007 and moderate to about 5 % over the rest of the programme period. Assessed against currently available information (2), this scenario appears to be based on plausible assumptions. The Commission services' autumn 2007 forecast expects private consumption growth to remain strong on the back of high wage increases in the private sector and rising employment, while moderating from the high level in 2007 linked to the government's planned fiscal consolidation. Both the convergence programme and the Commission services' autumn forecast predict a steep rise in inflation in 2008 due to increases in indirect taxation and rising commodity prices, which may weigh on nominal convergence. |
| --- | --- |

(3)

The convergence programme estimates GDP growth to be about 6 % in 2007 and moderate to about 5 % over the rest of the programme period. Assessed against currently available information (2), this scenario appears to be based on plausible assumptions. The Commission services' autumn 2007 forecast expects private consumption growth to remain strong on the back of high wage increases in the private sector and rising employment, while moderating from the high level in 2007 linked to the government's planned fiscal consolidation. Both the convergence programme and the Commission services' autumn forecast predict a steep rise in inflation in 2008 due to increases in indirect taxation and rising commodity prices, which may weigh on nominal convergence.

| (4) | For 2007, the Commission services' autumn forecast and the convergence programme estimate a general government deficit of 3,4 % of GDP, which is 0,6 percentage points below the target set in the previous update. However, recent information on budgetary implementation indicates that the 2007 outturn could be significantly better than envisaged in the current programme: the most recent information suggests that the general deficit in 2007 could be about 2 % of GDP. The lower estimated fiscal outcome is mainly due to the base effect of a higher revenue-to-GDP ratio in 2006 than anticipated in the previous convergence programme, as well as some expenditure restraint in 2007 and dynamic revenue growth thanks to stronger nominal GDP growth than anticipated. A lower 2007 deficit compared to the 2006 budgetary outcome is in line with the invitation in the Council opinion of 10 July 2007 on the previous update of the convergence programme (3) to limit the budgetary deterioration in 2007. |
| --- | --- |

(4)

For 2007, the Commission services' autumn forecast and the convergence programme estimate a general government deficit of 3,4 % of GDP, which is 0,6 percentage points below the target set in the previous update. However, recent information on budgetary implementation indicates that the 2007 outturn could be significantly better than envisaged in the current programme: the most recent information suggests that the general deficit in 2007 could be about 2 % of GDP. The lower estimated fiscal outcome is mainly due to the base effect of a higher revenue-to-GDP ratio in 2006 than anticipated in the previous convergence programme, as well as some expenditure restraint in 2007 and dynamic revenue growth thanks to stronger nominal GDP growth than anticipated. A lower 2007 deficit compared to the 2006 budgetary outcome is in line with the invitation in the Council opinion of 10 July 2007 on the previous update of the convergence programme (3) to limit the budgetary deterioration in 2007.

| (5) | The main goal of the budgetary strategy in the programme is to correct the excessive deficit in 2008 and thereafter to continue consolidation towards the achievement of the medium-term objective (MTO), which is a structural deficit of 1 % of GDP, in 2012. The general government deficit is projected to decrease from 3,4 % of GDP in 2007 to 2,9 % of GDP in 2008, 2,6 % of GDP in 2009 and 2,3 % of GDP in 2010. The primary deficit follows a similar path, narrowing from 2,3 % of GDP in 2007 to 1,1 % of GDP in 2010. The consolidation will be mainly expenditure-driven. In particular, the expected fall in the revenue-to-GDP ratio (partly attributable to the introduction of a flat tax in 2008) will be more than offset by a cut in the expenditure-to-GDP ratio. The latter is relatively broad-based but affects social and welfare benefits most significantly; public investment is the only spending category that is planned to increase as a share of GDP. Building on the better-than-expected outturn in 2006, the targets for public finances have been improved compared to those in the previous convergence programme. The most recent estimate of a lower general deficit in 2007 implies that these targets should be comfortably within reach. |
| --- | --- |

(5)

The main goal of the budgetary strategy in the programme is to correct the excessive deficit in 2008 and thereafter to continue consolidation towards the achievement of the medium-term objective (MTO), which is a structural deficit of 1 % of GDP, in 2012. The general government deficit is projected to decrease from 3,4 % of GDP in 2007 to 2,9 % of GDP in 2008, 2,6 % of GDP in 2009 and 2,3 % of GDP in 2010. The primary deficit follows a similar path, narrowing from 2,3 % of GDP in 2007 to 1,1 % of GDP in 2010. The consolidation will be mainly expenditure-driven. In particular, the expected fall in the revenue-to-GDP ratio (partly attributable to the introduction of a flat tax in 2008) will be more than offset by a cut in the expenditure-to-GDP ratio. The latter is relatively broad-based but affects social and welfare benefits most significantly; public investment is the only spending category that is planned to increase as a share of GDP. Building on the better-than-expected outturn in 2006, the targets for public finances have been improved compared to those in the previous convergence programme. The most recent estimate of a lower general deficit in 2007 implies that these targets should be comfortably within reach.

| (6) | The outcome for 2008 could be better than expected while the balance of risks is neutral with respect to budgetary outcomes from 2009 onwards. On one hand, the Czech Republic has a history of achieving lower-than-planned deficits and the latest estimate for 2007 is significantly better than foreseen in the programme, which may have a favourable base effect from 2008. While there are a large amount of tax changes occurring, which makes forecasting difficult, the programme's tax estimates appear cautious. On the other hand, the targeted consolidation requires significant expenditure restraint, including public sector wage restraint and cut backs in the number of public employees, while expenditure ceilings have been breached in previous years. After 2008, further consolidation measures remain to be spelled out. |
| --- | --- |

(6)

The outcome for 2008 could be better than expected while the balance of risks is neutral with respect to budgetary outcomes from 2009 onwards. On one hand, the Czech Republic has a history of achieving lower-than-planned deficits and the latest estimate for 2007 is significantly better than foreseen in the programme, which may have a favourable base effect from 2008. While there are a large amount of tax changes occurring, which makes forecasting difficult, the programme's tax estimates appear cautious. On the other hand, the targeted consolidation requires significant expenditure restraint, including public sector wage restraint and cut backs in the number of public employees, while expenditure ceilings have been breached in previous years. After 2008, further consolidation measures remain to be spelled out.

| (7) | In view of this risk assessment, namely in the light of the better-than-expected outturn in 2007, the budgetary stance in the programme seems consistent with a durable correction of the excessive deficit by 2008, as recommended by the Council. This is conditional on continuing expenditure restraint and a close monitoring of the fiscal impact of the tax reforms in the stabilisation programme. However, a sufficient safety margin against breaching the 3 % of GDP deficit threshold with normal macroeconomic fluctuations would not be achieved within the programme period. In the years following the correction of the excessive deficit, the pace of adjustment towards the MTO implied by the programme should be strengthened and backed up with measures to be in line with the Stability and Growth Pact. In particular, while the Czech Republic has experienced a period of strong growth, the programme target for 2010 implies that a significant adjustment will have to be made in 2011-2012 to achieve the MTO by 2012. |
| --- | --- |

(7)

In view of this risk assessment, namely in the light of the better-than-expected outturn in 2007, the budgetary stance in the programme seems consistent with a durable correction of the excessive deficit by 2008, as recommended by the Council. This is conditional on continuing expenditure restraint and a close monitoring of the fiscal impact of the tax reforms in the stabilisation programme. However, a sufficient safety margin against breaching the 3 % of GDP deficit threshold with normal macroeconomic fluctuations would not be achieved within the programme period. In the years following the correction of the excessive deficit, the pace of adjustment towards the MTO implied by the programme should be strengthened and backed up with measures to be in line with the Stability and Growth Pact. In particular, while the Czech Republic has experienced a period of strong growth, the programme target for 2010 implies that a significant adjustment will have to be made in 2011-2012 to achieve the MTO by 2012.

| (8) | The Czech Republic appears to be at high risk with regard to the sustainability of public finances. The initial budgetary position in the programme is not sufficiently high to stabilize the debt ratio over the long-term. The long-term budgetary impact of ageing is well above the EU average, influenced notably by a substantial increase in pension expenditure as a share of GDP as well as a significant increase in health care expenditure. Implementation of structural reform measures notably in the field of pensions and health care aimed at containing the significant increase in age-related expenditures would contribute to reducing risks to the sustainability of public finances. While initial steps have been made to reform the health care system, reform of the pension system still lacks implementation against a definite timetable. |
| --- | --- |

(8)

The Czech Republic appears to be at high risk with regard to the sustainability of public finances. The initial budgetary position in the programme is not sufficiently high to stabilize the debt ratio over the long-term. The long-term budgetary impact of ageing is well above the EU average, influenced notably by a substantial increase in pension expenditure as a share of GDP as well as a significant increase in health care expenditure. Implementation of structural reform measures notably in the field of pensions and health care aimed at containing the significant increase in age-related expenditures would contribute to reducing risks to the sustainability of public finances. While initial steps have been made to reform the health care system, reform of the pension system still lacks implementation against a definite timetable.

| (9) | The convergence programme seems to be consistent to some extent with the October 2007 implementation report of the national reform programme. The national reform programme includes a number of actions taken with the objective of improving the long-term sustainability of public finances; increasing the amount and quality of education and research; and increasing the motivation to take up employment. While the convergence programme does not provide systematic information on the direct budgetary costs associated with the main reforms envisaged in the national reform programme, the programme's budgetary projections seemingly take into account the public finance implications of the reforms envisaged in the implementation report of the NRP. |
| --- | --- |

(9)

The convergence programme seems to be consistent to some extent with the October 2007 implementation report of the national reform programme. The national reform programme includes a number of actions taken with the objective of improving the long-term sustainability of public finances; increasing the amount and quality of education and research; and increasing the motivation to take up employment. While the convergence programme does not provide systematic information on the direct budgetary costs associated with the main reforms envisaged in the national reform programme, the programme's budgetary projections seemingly take into account the public finance implications of the reforms envisaged in the implementation report of the NRP.

| (10) | The budgetary strategy in the programme is partly consistent with the country-specific broad economic policy guidelines included in the integrated guidelines in the area of budgetary policies issued in the context of the Lisbon strategy given the limited actions on pension and health care reform. |
| --- | --- |

(10)

The budgetary strategy in the programme is partly consistent with the country-specific broad economic policy guidelines included in the integrated guidelines in the area of budgetary policies issued in the context of the Lisbon strategy given the limited actions on pension and health care reform.

| (11) | As regards the data requirements specified in the code of conduct for stability and convergence programmes, the programme provides all required data and most of the optional data (4). |
| --- | --- |

(11)

As regards the data requirements specified in the code of conduct for stability and convergence programmes, the programme provides all required data and most of the optional data (4).

The overall conclusion is that the programme is consistent with a correction of the excessive deficit in 2008, conditional on continuing expenditure restraint and close monitoring of the impact of the fiscal impact of the tax measures in the stabilisation package. Owing to the positive macroeconomic outlook and a likely better 2007 budgetary outturn than expected in the programme, there could be ample opportunity to bring the 2008 deficit below the 3 % of GDP reference value by a larger margin, and to achieve stronger-than-targeted fiscal consolidation afterwards. The main risks are in the reliance on reductions to public sector employment and relate to the fact that further consolidation measures remain to be spelled out after 2008. The Czech Republic remains at high risk with respect to the sustainability of public finances, while first steps have been made on health care reform.

In view of the above assessment and also in the light of the recommendation under Article 104(7) of 10 October 2007, and given the need to achieve sustainable convergence, the Czech Republic is invited to:

| (i) | exploit the likely better-than-expected 2007 budgetary outcome to bring the 2008 deficit below the 3 % of GDP reference value by a larger margin by continuing to exercise expenditure restraint; |
| --- | --- |

(i)

exploit the likely better-than-expected 2007 budgetary outcome to bring the 2008 deficit below the 3 % of GDP reference value by a larger margin by continuing to exercise expenditure restraint;

| (ii) | exploit the high rate of growth in the economy by further strengthening the pace of adjustment so as to build a safety margin against breaching the reference value as soon as possible, and speed up the achievement of the MTO; |
| --- | --- |

(ii)

exploit the high rate of growth in the economy by further strengthening the pace of adjustment so as to build a safety margin against breaching the reference value as soon as possible, and speed up the achievement of the MTO;

| (iii) | in view of the projected increase in age-related expenditures, improve the long-term sustainability of public finances through the necessary pension and health care reforms. |
| --- | --- |

(iii)

in view of the projected increase in age-related expenditures, improve the long-term sustainability of public finances through the necessary pension and health care reforms.

Comparison of key macroeconomic and budgetary projections

| | 2006 | 2007 | 2008 | 2009 | 2010 |
| --- | --- | --- | --- | --- | --- |
| Real GDP
  (% change) | CP Nov 2007 | 6,4 | 5,9 | 5,0 | 5,1 | 5,3 |
| COM Nov 2007 | 6,4 | 5,8 | 5,0 | 4,9 | n.a. |
| CP March 2007 | 6,0 | 4,9 | 4,8 | 4,8 | n.a. |
| HICP inflation
  (%) | CP Nov 2007 | 2,1 | 2,4 | 3,9 | 2,3 | 2,1 |
| COM Nov 2007 | 2,1 | 3,0 | 3,8 | 3,2 | n.a. |
| CP March 2007 | 2,4 | 2,6 | 2,5 | 2,5 | n.a. |
| Output gap (5)

  (% of potential GDP) | CP Nov 2007 | 0,9 | 1,8 | 1,4 | 0,7 | 0,5 |
| COM Nov 2007 (6) | 1,1 | 2,1 | 2,1 | 1,4 | n.a. |
| CP March 2007 | 0,9 | 1,1 | 1,0 | 1,0 | n.a. |
| Net lending/borrowing vis-à-vis the rest of the world
  (% of GDP) | CP Nov 2007 | – 2,7 | – 2,4 | – 1,6 | – 0,4 | 1,5 |
| COM Nov 2007 | – 2,7 | – 2,5 | – 2,1 | – 1,9 | n.a. |
| CP March 2007 | – 2,8 | – 1,4 | 0,2 | 1,1 | n.a. |
| General government balance
  (% of GDP) | CP Nov 2007 | – 2,9 | – 3,4 | – 2,9 | – 2,6 | – 2,3 |
| COM Nov 2007 | – 2,9 | – 3,4 | – 2,8 | – 2,7 | n.a. |
| CP March 2007 | – 3,5 | – 4,0 | – 3,5 | – 3,2 | n.a. |
| Primary balance
  (% of GDP) | CP Nov 2007 | – 1,8 | – 2,3 | – 1,7 | – 1,3 | – 1,1 |
| COM Nov 2007 | – 1,8 | – 2,3 | – 1,8 | – 1,7 | n.a. |
| CP March 2007 | – 2,4 | – 2,6 | – 2,0 | – 1,6 | n.a. |
| Cyclically-adjusted balance (5)

  (% of GDP) | CP Nov 2007 | – 3,3 | – 4,1 | – 3,4 | – 2,8 | – 2,5 |
| COM Nov 2007 | – 3,3 | – 4,1 | – 3,6 | – 3,2 | n.a. |
| CP March 2007 | – 3,9 | – 4,4 | – 3,9 | – 3,5 | n.a. |
| Structural balance (7)

  (% of GDP) | CP Nov 2007 | – 3,1 | – 4,1 | – 3,4 | – 2,8 | – 2,5 |
| COM Nov 2007 | – 3,3 | – 4,1 | – 3,6 | – 3,2 | n.a. |
| CP March 2007 | – 3,9 | – 4,4 | – 3,9 | – 3,5 | n.a. |
| Government gross debt
  (% of GDP) | CP Nov 2007 | 30,1 | 30,4 | 30,3 | 30,2 | 30,0 |
| COM Nov 2007 | 30,1 | 30,2 | 30,3 | 30,5 | n.a. |
| CP March 2007 | 30,6 | 30,5 | 31,3 | 32,2 | n.a. |
| Convergence programme (CP); Commission services' autumn 2007 economic forecasts (COM); Commission services' calculations. |

2006

2007

2008

2009

2010

Real GDP

(% change)

CP Nov 2007

6,4

5,9

5,0

5,1

5,3

COM Nov 2007

6,4

5,8

5,0

4,9

n.a.

CP March 2007

6,0

4,9

4,8

4,8

n.a.

HICP inflation

(%)

CP Nov 2007

2,1

2,4

3,9

2,3

2,1

COM Nov 2007

2,1

3,0

3,8

3,2

n.a.

CP March 2007

2,4

2,6

2,5

2,5

n.a.

Output gap (5)

(% of potential GDP)

CP Nov 2007

0,9

1,8

1,4

0,7

0,5

COM Nov 2007 (6)

1,1

2,1

2,1

1,4

n.a.

CP March 2007

0,9

1,1

1,0

1,0

n.a.

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

(% of GDP)

CP Nov 2007

– 2,7

– 2,4

– 1,6

– 0,4

1,5

COM Nov 2007

– 2,7

– 2,5

– 2,1

– 1,9

n.a.

CP March 2007

– 2,8

– 1,4

0,2

1,1

n.a.

General government balance

(% of GDP)

CP Nov 2007

– 2,9

– 3,4

– 2,9

– 2,6

– 2,3

COM Nov 2007

– 2,9

– 3,4

– 2,8

– 2,7

n.a.

CP March 2007

– 3,5

– 4,0

– 3,5

– 3,2

n.a.

Primary balance

(% of GDP)

CP Nov 2007

– 1,8

– 2,3

– 1,7

– 1,3

– 1,1

COM Nov 2007

– 1,8

– 2,3

– 1,8

– 1,7

n.a.

CP March 2007

– 2,4

– 2,6

– 2,0

– 1,6

n.a.

Cyclically-adjusted balance (5)

(% of GDP)

CP Nov 2007

– 3,3

– 4,1

– 3,4

– 2,8

– 2,5

COM Nov 2007

– 3,3

– 4,1

– 3,6

– 3,2

n.a.

CP March 2007

– 3,9

– 4,4

– 3,9

– 3,5

n.a.

Structural balance (7)

(% of GDP)

CP Nov 2007

– 3,1

– 4,1

– 3,4

– 2,8

– 2,5

COM Nov 2007

– 3,3

– 4,1

– 3,6

– 3,2

n.a.

CP March 2007

– 3,9

– 4,4

– 3,9

– 3,5

n.a.

Government gross debt

(% of GDP)

CP Nov 2007

30,1

30,4

30,3

30,2

30,0

COM Nov 2007

30,1

30,2

30,3

30,5

n.a.

CP March 2007

30,6

30,5

31,3

32,2

n.a.

Convergence programme (CP); Commission services' autumn 2007 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://ec.europa.eu/economy_finance/about/activities/sgp/main_en.htm

(2)  The assessment takes notably into account the Commission services' autumn forecast and the Commission assessment of the October 2007 national reform programme.

(3)  OJ C 204, 1.9.2007, p. 1.

(4)  The data on COFOG for 2010 are not provided.

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

(6)  Based on estimated potential growth of 4,5 %, 4,7 %, 5,0 % and 5,6 % respectively in the period 2006-2009.

(7)  Cyclically-adjusted balance excluding one-off and other temporary measures. One-off and other temporary measures in the convergence programme of November 2007 are 0,2 % of GDP in year 2006; deficit-increasing. There are no one-offs in the Commission services' autumn forecast.

Sources:

Convergence programme (CP); Commission services' autumn 2007 economic forecasts (COM); Commission services' calculations.

---

| 20.3.2008 | EN | Official Journal of the European Union | C 74/28 |
| --- | --- | --- | --- |

20.3.2008

EN

Official Journal of the European Union

C 74/28

---

COUNCIL OPINION

of 4 March 2008

on the stability programme of Malta, 2007-2010

(2008/C 74/07)

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(2) thereof,

Having regard to the recommendation of the Commission,

After consulting the Economic and Financial Committee,

HAS DELIVERED THIS OPINION:

| (1) | On 4 March 2008, the Council examined the first stability programme of Malta, which covers the period 2007 to 2010. |
| --- | --- |

(1)

On 4 March 2008, the Council examined the first stability programme of Malta, which covers the period 2007 to 2010.

| (2) | On 1 January 2008, Malta joined the euro area with GDP growth on a recovery path since 2004. During the early 2000s, weak economic performance was partly a result of external factors, to which Malta is particularly exposed, being a small open economy and relying on sectors such as tourism and the electronics industry, which have proven to be volatile.
  Domestic structural weaknesses also explain the sluggish GDP growth. Productivity contracted by an annual average of around 1 % between 2001 and 2003. In addition, significant wage growth led to a sharp rise in unit labour cost and, as a result, to a loss in external competitiveness. Since 2004, economic performance improved primarily due to favourable cyclical conditions but also owing to wage moderation and a recovery in productivity. On the fiscal side, euro area entry followed a period of considerable consolidation — with debt as a percent of GDP on a declining path since 2005 — as well as progress towards lower inflation. In this new context, enhancing the room for manoeuvre of fiscal policy, which could be achieved by pursuing further budgetary consolidation and via expenditure reforms, namely in the fast-increasing healthcare spending, represents a challenge for Malta's adjustment capacity to asymmetric disturbances. Moreover, such spending reforms would improve the long-term sustainability of public finances, as well as allow a re-direction of expenditure to growth-enhancing categories, thereby help boost productivity. Higher productivity, together with a continuation of wage moderation would bolster competitiveness — another challenge facing the Maltese economy, particularly within a euro area context. |
| --- | --- |

(2)

On 1 January 2008, Malta joined the euro area with GDP growth on a recovery path since 2004. During the early 2000s, weak economic performance was partly a result of external factors, to which Malta is particularly exposed, being a small open economy and relying on sectors such as tourism and the electronics industry, which have proven to be volatile.

Domestic structural weaknesses also explain the sluggish GDP growth. Productivity contracted by an annual average of around 1 % between 2001 and 2003. In addition, significant wage growth led to a sharp rise in unit labour cost and, as a result, to a loss in external competitiveness. Since 2004, economic performance improved primarily due to favourable cyclical conditions but also owing to wage moderation and a recovery in productivity. On the fiscal side, euro area entry followed a period of considerable consolidation — with debt as a percent of GDP on a declining path since 2005 — as well as progress towards lower inflation. In this new context, enhancing the room for manoeuvre of fiscal policy, which could be achieved by pursuing further budgetary consolidation and via expenditure reforms, namely in the fast-increasing healthcare spending, represents a challenge for Malta's adjustment capacity to asymmetric disturbances. Moreover, such spending reforms would improve the long-term sustainability of public finances, as well as allow a re-direction of expenditure to growth-enhancing categories, thereby help boost productivity. Higher productivity, together with a continuation of wage moderation would bolster competitiveness — another challenge facing the Maltese economy, particularly within a euro area context.

| (3) | The macroeconomic scenario underlying the programme envisages real GDP to grow by 3,5 % in 2007, slow down in 2008 and accelerate thereafter to reach 3,4 % by the end of the programme period. Assessed against currently available information (2), this scenario appears to be based on plausible growth assumptions for 2007. For the period 2008-2010, GDP growth projections seem favourable, mainly due to strong contribution of net exports projected in the outer years of the programme period. The resulting improvement in the external balance of goods and services of 3,3 percentage points of GDP by 2010 projected in the programme seems optimistic.
  The programme's projections for inflation appear realistic and are in line with the Commission services' autumn 2007 forecast. However, the possibility of further increases in public sector wages, which could lead to overall wages rising far in excess of productivity gains, may entail a less favourable development in Malta's competitiveness than implied by the stability programme. |
| --- | --- |

(3)

The macroeconomic scenario underlying the programme envisages real GDP to grow by 3,5 % in 2007, slow down in 2008 and accelerate thereafter to reach 3,4 % by the end of the programme period. Assessed against currently available information (2), this scenario appears to be based on plausible growth assumptions for 2007. For the period 2008-2010, GDP growth projections seem favourable, mainly due to strong contribution of net exports projected in the outer years of the programme period. The resulting improvement in the external balance of goods and services of 3,3 percentage points of GDP by 2010 projected in the programme seems optimistic.

The programme's projections for inflation appear realistic and are in line with the Commission services' autumn 2007 forecast. However, the possibility of further increases in public sector wages, which could lead to overall wages rising far in excess of productivity gains, may entail a less favourable development in Malta's competitiveness than implied by the stability programme.

| (4) | For 2007, the general government deficit is estimated at 1,8 % of GDP in the Commission services' autumn 2007 forecast and at 1,6 % in the stability programme, against a target of 2,3 % of GDP set in the last update of the convergence programme. Net of one-off transactions (consisting mainly of sale of land, which are conventionally recorded as negative expenditure), however, the 2007 deficit outturn is broadly in line with the target in the 2006 convergence programme in spite of a favourable base effect from 2006. Revenue as a ratio of GDP is significantly below expectations largely owing to lower-than-expected absorption of EU funds. As a consequence, the expenditure ratio for 2007 is also lower than planned in the 2006 convergence programme. As the structural adjustment in 2007 now seems below 0,5 percentage point of GDP, compared to around 1 percentage point as planned in the last update of the convergence programme, budgetary implementation is not in line with the invitation in the Council opinion of 27 February 2007 on the previous programme (3) to ‘pursue adequate progress towards the MTO as foreseen in the programme’. |
| --- | --- |

(4)

For 2007, the general government deficit is estimated at 1,8 % of GDP in the Commission services' autumn 2007 forecast and at 1,6 % in the stability programme, against a target of 2,3 % of GDP set in the last update of the convergence programme. Net of one-off transactions (consisting mainly of sale of land, which are conventionally recorded as negative expenditure), however, the 2007 deficit outturn is broadly in line with the target in the 2006 convergence programme in spite of a favourable base effect from 2006. Revenue as a ratio of GDP is significantly below expectations largely owing to lower-than-expected absorption of EU funds. As a consequence, the expenditure ratio for 2007 is also lower than planned in the 2006 convergence programme. As the structural adjustment in 2007 now seems below 0,5 percentage point of GDP, compared to around 1 percentage point as planned in the last update of the convergence programme, budgetary implementation is not in line with the invitation in the Council opinion of 27 February 2007 on the previous programme (3) to ‘pursue adequate progress towards the MTO as foreseen in the programme’.

| (5) | As in the last update of the convergence programme, the main budgetary goal outlined in the stability programme is to pursue further fiscal consolidation over the programme period, with the overarching objective of achieving the MTO of a balanced position in structural terms (i.e. cyclically-adjusted net of one-off and other temporary measures) by 2010. The general government balance is planned to improve from a deficit of 1,6 % of GDP in 2007 to a surplus of 0,9 % of GDP by 2010. With a projected decline in the interest burden, the primary surplus is expected to increase to 3,8 % of GDP by 2010. The structural balance is projected to improve by 2 percentage points of GDP in the period 2007-2010. The nominal adjustment is to be achieved through a decline in the primary expenditure ratio of over 3,5 percentage points of GDP, which more than offsets a fall in the revenue ratio of 1,5 percentage points of GDP. Lower recourse will be made to deficit-reducing one-off measures than in the recent past. Expenditure restraint is relatively broad-based with particular emphasis on compensation of employees. The marked fall in indirect taxes as a share of GDP in the outer years is not explained in the programme, while the cost of the 2008 changes to the personal tax reform system is assumed to be more than covered by higher revenue from other direct taxes. Against the background of a broadly unchanged macroeconomic scenario, the budgetary targets for 2008 and 2009 in the stability programme are less ambitious than in the 2006 update, by around 0,25 of a percentage point of GDP, reflecting a lower adjustment effort in 2008. Government gross debt, estimated to fall to around 63 % of GDP in 2007, still above the 60 % of GDP Treaty reference value, is projected to further decline by almost 10 percentage points over the programme period. |
| --- | --- |

(5)

As in the last update of the convergence programme, the main budgetary goal outlined in the stability programme is to pursue further fiscal consolidation over the programme period, with the overarching objective of achieving the MTO of a balanced position in structural terms (i.e. cyclically-adjusted net of one-off and other temporary measures) by 2010. The general government balance is planned to improve from a deficit of 1,6 % of GDP in 2007 to a surplus of 0,9 % of GDP by 2010. With a projected decline in the interest burden, the primary surplus is expected to increase to 3,8 % of GDP by 2010. The structural balance is projected to improve by 2 percentage points of GDP in the period 2007-2010. The nominal adjustment is to be achieved through a decline in the primary expenditure ratio of over 3,5 percentage points of GDP, which more than offsets a fall in the revenue ratio of 1,5 percentage points of GDP. Lower recourse will be made to deficit-reducing one-off measures than in the recent past. Expenditure restraint is relatively broad-based with particular emphasis on compensation of employees. The marked fall in indirect taxes as a share of GDP in the outer years is not explained in the programme, while the cost of the 2008 changes to the personal tax reform system is assumed to be more than covered by higher revenue from other direct taxes. Against the background of a broadly unchanged macroeconomic scenario, the budgetary targets for 2008 and 2009 in the stability programme are less ambitious than in the 2006 update, by around 0,25 of a percentage point of GDP, reflecting a lower adjustment effort in 2008. Government gross debt, estimated to fall to around 63 % of GDP in 2007, still above the 60 % of GDP Treaty reference value, is projected to further decline by almost 10 percentage points over the programme period.

| (6) | The budgetary outcomes could be worse than projected in the programme. For 2008, the assumption that the changes to the personal income tax system will be covered by other, typically volatile revenue items, such as capital gains tax and profit taxes, constitutes a risk. There is also a possibility of expenditure slippages linked for instance to the decision to subsidise utility prices without compensating measures.
  Additionally, generous wage increases granted to health sector employees could lead to similar claims within the rest of the public sector. For 2009 and 2010, outcomes could be worse than targeted due to the favourable macroeconomic scenario underlying the programme's projections (although tax projections for these years seem cautious assuming that no discretionary tax reductions are envisaged) and also due to the lack of information on measures underpinning the consolidation process, in particular as regards the envisaged continued restraint in the public wage bill. In view of these negative risks to the budgetary targets, the evolution of the debt ratio is likely to be less favourable than projected in the programme, especially after 2008. On the positive side, the outturn of expenditure as a ratio of GDP in the past years has consistently been lower than planned in successive programmes. Furthermore, Malta's track record of achieving its targets for the general government deficit has been good, as outcomes have usually been better than planned. |
| --- | --- |

(6)

The budgetary outcomes could be worse than projected in the programme. For 2008, the assumption that the changes to the personal income tax system will be covered by other, typically volatile revenue items, such as capital gains tax and profit taxes, constitutes a risk. There is also a possibility of expenditure slippages linked for instance to the decision to subsidise utility prices without compensating measures.

Additionally, generous wage increases granted to health sector employees could lead to similar claims within the rest of the public sector. For 2009 and 2010, outcomes could be worse than targeted due to the favourable macroeconomic scenario underlying the programme's projections (although tax projections for these years seem cautious assuming that no discretionary tax reductions are envisaged) and also due to the lack of information on measures underpinning the consolidation process, in particular as regards the envisaged continued restraint in the public wage bill. In view of these negative risks to the budgetary targets, the evolution of the debt ratio is likely to be less favourable than projected in the programme, especially after 2008. On the positive side, the outturn of expenditure as a ratio of GDP in the past years has consistently been lower than planned in successive programmes. Furthermore, Malta's track record of achieving its targets for the general government deficit has been good, as outcomes have usually been better than planned.

| (7) | In view of this risk assessment, the budgetary stance in the programme may not be sufficient to ensure that the MTO is achieved by 2010, as envisaged in the programme. However, a sufficient safety margin against breaching the 3 % of GDP deficit threshold with normal macroeconomic fluctuations would be provided from 2008. The planned consolidation is in line with the Stability and Growth Pact, which prescribes an annual improvement in the structural balance of 0,5 % of GDP as a benchmark and a larger effort provided that Malta remains in good economic times. However, given the risks above, the pace of adjustment towards the MTO implied by the programme should be backed up with measures, especially in the years 2009 and 2010. Finally, taking into account the risks to the debt projections mentioned above, the debt ratio seems to be sufficiently diminishing towards the reference value over the programme period and would fall below it in 2009. |
| --- | --- |

(7)

In view of this risk assessment, the budgetary stance in the programme may not be sufficient to ensure that the MTO is achieved by 2010, as envisaged in the programme. However, a sufficient safety margin against breaching the 3 % of GDP deficit threshold with normal macroeconomic fluctuations would be provided from 2008. The planned consolidation is in line with the Stability and Growth Pact, which prescribes an annual improvement in the structural balance of 0,5 % of GDP as a benchmark and a larger effort provided that Malta remains in good economic times. However, given the risks above, the pace of adjustment towards the MTO implied by the programme should be backed up with measures, especially in the years 2009 and 2010. Finally, taking into account the risks to the debt projections mentioned above, the debt ratio seems to be sufficiently diminishing towards the reference value over the programme period and would fall below it in 2009.

| (8) | Malta appears to be at medium risk with regard to the sustainability of public finances. The long-term budgetary impact of ageing is significantly lower than the EU average, with pension expenditure decreasing as a share of GDP over the long term. Yet, the 2006 pension reform, which aims both at increasing the retirement age and improving the level of pension, is likely to imply higher spending over the long run. In addition, the current level of gross debt is still above the Treaty reference value. The budgetary position in 2007 as estimated in the programme, which is better than the starting position of the previous programme, contributes to offsetting the projected long-term budgetary impact of ageing populations. Improving the budgetary position, including by enhancing the efficiency and flexibility of public spending, such as in the fast-increasing healthcare expenditure that is also subject to the impact of ageing, would contribute to reducing the risks to the sustainability of public finances. |
| --- | --- |

(8)

Malta appears to be at medium risk with regard to the sustainability of public finances. The long-term budgetary impact of ageing is significantly lower than the EU average, with pension expenditure decreasing as a share of GDP over the long term. Yet, the 2006 pension reform, which aims both at increasing the retirement age and improving the level of pension, is likely to imply higher spending over the long run. In addition, the current level of gross debt is still above the Treaty reference value. The budgetary position in 2007 as estimated in the programme, which is better than the starting position of the previous programme, contributes to offsetting the projected long-term budgetary impact of ageing populations. Improving the budgetary position, including by enhancing the efficiency and flexibility of public spending, such as in the fast-increasing healthcare expenditure that is also subject to the impact of ageing, would contribute to reducing the risks to the sustainability of public finances.

| (9) | The stability programme seems to be to some extent consistent with the October 2007 implementation report of the national reform programme. In particular, the programme's budgetary projections take into account the public finance implications of the measures identified in the national reform programme. The measures in the area of public finances envisaged in the stability programme seem consistent with those foreseen in the national reform programme. In particular, the main policy measure presented in the stability programme, i.e. a further revision of the personal income tax regime, is in line with the national reform programme. However, healthcare reform — a key area in public finance identified in the national reform programme — is not dealt with in the stability programme. Also, the programme does not clearly spell out the way in which expenditure will be channelled to growth-enhancing categories, especially in the outer years. |
| --- | --- |

(9)

The stability programme seems to be to some extent consistent with the October 2007 implementation report of the national reform programme. In particular, the programme's budgetary projections take into account the public finance implications of the measures identified in the national reform programme. The measures in the area of public finances envisaged in the stability programme seem consistent with those foreseen in the national reform programme. In particular, the main policy measure presented in the stability programme, i.e. a further revision of the personal income tax regime, is in line with the national reform programme. However, healthcare reform — a key area in public finance identified in the national reform programme — is not dealt with in the stability programme. Also, the programme does not clearly spell out the way in which expenditure will be channelled to growth-enhancing categories, especially in the outer years.

| (10) | The budgetary strategy in the programme is partly consistent with the country-specific broad economic policy guidelines included in the integrated guidelines and with the guidelines for the euro area in the area of budgetary policies issued in the context of the Lisbon strategy. In particular, the programme does not envisage significant progress in healthcare reform, as encouraged by the Council in its recommendation. |
| --- | --- |

(10)

The budgetary strategy in the programme is partly consistent with the country-specific broad economic policy guidelines included in the integrated guidelines and with the guidelines for the euro area in the area of budgetary policies issued in the context of the Lisbon strategy. In particular, the programme does not envisage significant progress in healthcare reform, as encouraged by the Council in its recommendation.

| (11) | As regards the data requirements specified in the code of conduct for stability and convergence programmes, the programme has some gaps in both the compulsory and optional data (4). |
| --- | --- |

(11)

As regards the data requirements specified in the code of conduct for stability and convergence programmes, the programme has some gaps in both the compulsory and optional data (4).

The overall conclusion is that the stability programme envisages continued progress towards reaching the MTO, which is planned to be achieved by 2010, brought about by expenditure restraint in a context of sustained economic growth. The reduction of the general government gross debt is planned to proceed at a satisfactory pace and is expected to fall below the 60 % of GDP reference value by 2009. However, there are risks to the achievement of the budgetary targets linked to a reliance on volatile tax revenue items in 2008, the envisaged degree of spending restraint, the favourable macroeconomic outlook after 2008 and the lack of information of the underlying measures, in particular as regards the envisaged continued restraint in the public wage bill. These may hinder the achievement of the MTO by the target year 2010. In addition, Malta's competitiveness within the euro area may be at risk in the event of a departure from wage moderation in the public sector, which may spill over to the private sector. In terms of the long-term sustainability of public finances, Malta is at medium risk.

In view of the above assessment, Malta is invited to:

| (i) | pursue further fiscal consolidation as envisaged in the programme so as to reach the MTO by 2010 and ensure that the debt-to-GDP ratio is reduced accordingly, by spelling out the measures supporting the planned consolidation, especially on the expenditure side; |
| --- | --- |

(i)

pursue further fiscal consolidation as envisaged in the programme so as to reach the MTO by 2010 and ensure that the debt-to-GDP ratio is reduced accordingly, by spelling out the measures supporting the planned consolidation, especially on the expenditure side;

| (ii) | enhance the efficiency and flexibility of public spending, including by accelerating the design and implementation of a comprehensive healthcare reform. |
| --- | --- |

(ii)

enhance the efficiency and flexibility of public spending, including by accelerating the design and implementation of a comprehensive healthcare reform.

Comparison of key macroeconomic and budgetary projections

| | 2006 | 2007 | 2008 | 2009 | 2010 |
| --- | --- | --- | --- | --- | --- |
| Real GDP
  (% change) | SP Nov 2007 | 3,2 | 3,5 | 3,1 | 3,2 | 3,4 |
| COM Nov 2007 | 3,2 | 3,1 | 2,8 | 2,9 | n.a. |
| CP Dec 2006 | 2,9 | 3,0 | 3,1 | 3,1 | n.a. |
| HICP inflation
  (%) | SP Nov 2007 | 2,6 | 0,9 | 2,5 | 2,3 | 2,1 |
| COM Nov 2007 | 2,6 | 0,8 | 2,5 | 2,2 | n.a. |
| CP Dec 2006 | 3,1 | 2,2 | 2,1 | 2,0 | n.a. |
| Output gap (5)

  (% of potential GDP) | SP Nov 2007 | – 1,9 | – 0,8 | – 0,1 | 0,5 | 1,9 |
| COM Nov 2007 (6) | – 1,5 | – 0,6 | – 0,1 | 0,5 | n.a. |
| CP Dec 2006 | – 2,1 | – 1,3 | – 0,3 | 0,9 | n.a. |
| Net lending/borrowing vis-à-vis the rest of the world
  (% of GDP) | SP Nov 2007 | – 3,7 | – 0,5 | 0,2 | 3,2 | 5,5 |
| COM Nov 2007 | – 3,7 | – 0,9 | – 0,6 | 0,0 | n.a. |
| CP Dec 2006 | n.a. | n.a. | n.a. | n.a. | n.a. |
| General government balance
  (% of GDP) | SP Nov 2007 | – 2,5 | – 1,6 | – 1,2 | – 0,1 | 0,9 |
| COM Nov 2007 | – 2,5 | – 1,8 | – 1,6 | – 1,0 | n.a. |
| CP Dec 2006 | – 2,6 | – 2,3 | – 0,9 | 0,1 | n.a. |
| Primary balance
  (% of GDP) | SP Nov 2007 | 1,0 | 1,7 | 2,0 | 2,9 | 3,8 |
| COM Nov 2007 | 1,0 | 1,5 | 1,6 | 2,1 | n.a. |
| CP Dec 2006 | 1,1 | 1,1 | 2,5 | 3,2 | n.a. |
| Cyclically-adjusted balance (5)

  (% of GDP) | SP Nov 2007 | – 1,8 | – 1,3 | – 1,2 | – 0,3 | 0,3 |
| COM Nov 2007 | – 2,0 | – 1,6 | – 1,5 | – 1,2 | n.a. |
| CP Dec 2006 | – 1,8 | – 1,8 | – 0,8 | – 0,2 | n.a. |
| Structural balance (7)

  (% of GDP) | SP Nov 2007 | – 2,5 | – 2,1 | – 1,4 | – 0,5 | 0,1 |
| COM Nov 2007 | – 2,7 | – 2,3 | – 1,7 | – 1,2 | n.a. |
| CP Dec 2006 | – 2,9 | – 2,0 | – 1,0 | – 0,4 | n.a. |
| Government gross debt
  (% of GDP) | SP Nov 2007 | 64,7 | 62,9 | 60,0 | 57,2 | 53,3 |
| COM Nov 2007 | 64,7 | 63,1 | 61,3 | 59,2 | n.a. |
| CP Dec 2006 | 68,3 | 66,7 | 63,2 | 59,4 | n.a. |
| Stability programme (SP); Convergence programmes (CP); Commission services' autumn 2007 economic forecasts (COM); Commission services' calculations. |

2006

2007

2008

2009

2010

Real GDP

(% change)

SP Nov 2007

3,2

3,5

3,1

3,2

3,4

COM Nov 2007

3,2

3,1

2,8

2,9

n.a.

CP Dec 2006

2,9

3,0

3,1

3,1

n.a.

HICP inflation

(%)

SP Nov 2007

2,6

0,9

2,5

2,3

2,1

COM Nov 2007

2,6

0,8

2,5

2,2

n.a.

CP Dec 2006

3,1

2,2

2,1

2,0

n.a.

Output gap (5)

(% of potential GDP)

SP Nov 2007

– 1,9

– 0,8

– 0,1

0,5

1,9

COM Nov 2007 (6)

– 1,5

– 0,6

– 0,1

0,5

n.a.

CP Dec 2006

– 2,1

– 1,3

– 0,3

0,9

n.a.

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

(% of GDP)

SP Nov 2007

– 3,7

– 0,5

0,2

3,2

5,5

COM Nov 2007

– 3,7

– 0,9

– 0,6

0,0

n.a.

CP Dec 2006

n.a.

n.a.

n.a.

n.a.

n.a.

General government balance

(% of GDP)

SP Nov 2007

– 2,5

– 1,6

– 1,2

– 0,1

0,9

COM Nov 2007

– 2,5

– 1,8

– 1,6

– 1,0

n.a.

CP Dec 2006

– 2,6

– 2,3

– 0,9

0,1

n.a.

Primary balance

(% of GDP)

SP Nov 2007

1,0

1,7

2,0

2,9

3,8

COM Nov 2007

1,0

1,5

1,6

2,1

n.a.

CP Dec 2006

1,1

1,1

2,5

3,2

n.a.

Cyclically-adjusted balance (5)

(% of GDP)

SP Nov 2007

– 1,8

– 1,3

– 1,2

– 0,3

0,3

COM Nov 2007

– 2,0

– 1,6

– 1,5

– 1,2

n.a.

CP Dec 2006

– 1,8

– 1,8

– 0,8

– 0,2

n.a.

Structural balance (7)

(% of GDP)

SP Nov 2007

– 2,5

– 2,1

– 1,4

– 0,5

0,1

COM Nov 2007

– 2,7

– 2,3

– 1,7

– 1,2

n.a.

CP Dec 2006

– 2,9

– 2,0

– 1,0

– 0,4

n.a.

Government gross debt

(% of GDP)

SP Nov 2007

64,7

62,9

60,0

57,2

53,3

COM Nov 2007

64,7

63,1

61,3

59,2

n.a.

CP Dec 2006

68,3

66,7

63,2

59,4

n.a.

Stability programme (SP); Convergence programmes (CP); Commission services' autumn 2007 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://ec.europa.eu/economy_finance/about/activities/sgp/main_en.htm

(2)  The assessment takes into account notably the Commission services' autumn forecast and the Commission assessment of the October 2007 implementation report of the national reform programme.

(3)  OJ C 72, 29.3.2007, p. 9.

(4)  The missing data include the contribution of labour, capital and total factor productivity to potential GDP growth, the breakdown of stock-flow adjustments for the general government and some items in the projections for the long-term sustainability of public finances.

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

(6)  Based on estimated potential growth of 2,3 %, 2,2 %, 2,3 % and 2,3 % respectively in the period 2006-2009.

(7)  Cyclically-adjusted balance excluding one-off and other temporary measures. One-off and other temporary measures are 0,7 % of GDP in 2006, 0,8 % in 2007, 0,2 % in 2008, 0,2 % in 2009 and 0,1 % in 2010; all deficit-reducing according to the 2007 stability programme and 0,7 % of GDP in 2006, 0,8 % in 2007, 0,2 % in 2008 and 0 % in 2009; all deficit-reducing in the Commission services' autumn forecast.

Sources:

Stability programme (SP); Convergence programmes (CP); Commission services' autumn 2007 economic forecasts (COM); Commission services' calculations.

---

| 20.3.2008 | EN | Official Journal of the European Union | C 74/33 |
| --- | --- | --- | --- |

20.3.2008

EN

Official Journal of the European Union

C 74/33

---

COUNCIL OPINION

of 4 March 2008

on the updated stability programme of Greece, 2007-2010

(2008/C 74/08)

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 4 March 2008, the Council examined the updated stability programme of Greece, which covers the period 2007 to 2010 (2). |
| --- | --- |

(1)

On 4 March 2008, the Council examined the updated stability programme of Greece, which covers the period 2007 to 2010 (2).

| (2) | Over the recent years, Greece has recorded high growth rates driven by buoyant private consumption and dynamic investment activity, while employment growth accelerated significantly. However, relatively high inflation differentials with the euro area persist, and, in spite of a significant productivity growth, is leading to competitiveness losses.
  The high and widening external imbalances, that are partly explained by one of the highest investment ratios in the EU, if continued in the medium term, might affect the performance of the economy. In this context, fiscal policy has a crucial role to play in stabilising the economy, improving its efficiency and diminishing the risks associated to overheating and widening external imbalances. Significant progress has been made since 2004 to consolidate public finances in a sustainable manner. On that basis, controlling current primary expenditure, preventing a pro-cyclical stance of fiscal policy and stepping up public spending efficiency are paramount to further securing fiscal discipline and improving the quality of public finances. Given the still high public debt level, the long-term sustainability of public finances greatly depends on achieving and sustaining sound budgetary positions, continuing the on-going reforms in the healthcare system and implementing comprehensive reform of the pension system (3). |
| --- | --- |

(2)

Over the recent years, Greece has recorded high growth rates driven by buoyant private consumption and dynamic investment activity, while employment growth accelerated significantly. However, relatively high inflation differentials with the euro area persist, and, in spite of a significant productivity growth, is leading to competitiveness losses.

The high and widening external imbalances, that are partly explained by one of the highest investment ratios in the EU, if continued in the medium term, might affect the performance of the economy. In this context, fiscal policy has a crucial role to play in stabilising the economy, improving its efficiency and diminishing the risks associated to overheating and widening external imbalances. Significant progress has been made since 2004 to consolidate public finances in a sustainable manner. On that basis, controlling current primary expenditure, preventing a pro-cyclical stance of fiscal policy and stepping up public spending efficiency are paramount to further securing fiscal discipline and improving the quality of public finances. Given the still high public debt level, the long-term sustainability of public finances greatly depends on achieving and sustaining sound budgetary positions, continuing the on-going reforms in the healthcare system and implementing comprehensive reform of the pension system (3).

| (3) | The macroeconomic scenario underlying the programme envisages that real GDP growth will be sustained at about 4 % on average over the programme period. Assessed against currently available information (4), this scenario appears to be based on favourable growth assumptions, in particular in the outer years. In particular, private consumption and investment growth are projected in the stability programme to remain favourable, on the back of somewhat high employment growth and an optimistic assessment of the impact of some implemented measures, such as the second phase of tax reform including further reduction in personal tax rates, legislated in 2006, the investment incentive law and the speeding-up of PPP (public-private partnerships) projects.
  Moreover, the evolution of labour cost may induce inflationary pressures, despite the wage restraint in the public sector, while competitiveness could deteriorate more than foreseen in the programme. In addition, on recent information, the inflation projection may be subject to upside risks. |
| --- | --- |

(3)

The macroeconomic scenario underlying the programme envisages that real GDP growth will be sustained at about 4 % on average over the programme period. Assessed against currently available information (4), this scenario appears to be based on favourable growth assumptions, in particular in the outer years. In particular, private consumption and investment growth are projected in the stability programme to remain favourable, on the back of somewhat high employment growth and an optimistic assessment of the impact of some implemented measures, such as the second phase of tax reform including further reduction in personal tax rates, legislated in 2006, the investment incentive law and the speeding-up of PPP (public-private partnerships) projects.

Moreover, the evolution of labour cost may induce inflationary pressures, despite the wage restraint in the public sector, while competitiveness could deteriorate more than foreseen in the programme. In addition, on recent information, the inflation projection may be subject to upside risks.

| (4) | According to the programme, the general government deficit for 2007 is estimated to have rebounded to 2,7 % of GDP in 2007 (from 2,5 % in 2006), compared to the target deficit of 2,2 % of GDP set in the previous update (5). This deviation of 0,5 percentage point of GDP reflects, in addition to a small negative base effect, an expenditure overrun of some 0,25 percentage point of GDP and a net deficit-increasing impact of one-offs of 0,3 percentage point of GDP (6). The projected deficit outturn in the Commission services' autumn 2007 forecast is 2,9 % of GDP, 0,25 of a percentage point higher than in the programme, based on a more prudent assessment of tax revenues. The estimated narrowing of the structural government deficit (i.e. the cyclically-adjusted deficit net of one-off and other temporary measures) in 2007 by some 0,5 percentage point of GDP is partly in line with the invitation in the Council opinion of 27 February 2007 on the previous update of the stability programme (7) to ‘strengthen the adjustment towards the MTO’. The Council notes that the implementation of the 2007 budget is also not fully consistent with the April 2007 Eurogroup orientations for budgetary policies. |
| --- | --- |

(4)

According to the programme, the general government deficit for 2007 is estimated to have rebounded to 2,7 % of GDP in 2007 (from 2,5 % in 2006), compared to the target deficit of 2,2 % of GDP set in the previous update (5). This deviation of 0,5 percentage point of GDP reflects, in addition to a small negative base effect, an expenditure overrun of some 0,25 percentage point of GDP and a net deficit-increasing impact of one-offs of 0,3 percentage point of GDP (6). The projected deficit outturn in the Commission services' autumn 2007 forecast is 2,9 % of GDP, 0,25 of a percentage point higher than in the programme, based on a more prudent assessment of tax revenues. The estimated narrowing of the structural government deficit (i.e. the cyclically-adjusted deficit net of one-off and other temporary measures) in 2007 by some 0,5 percentage point of GDP is partly in line with the invitation in the Council opinion of 27 February 2007 on the previous update of the stability programme (7) to ‘strengthen the adjustment towards the MTO’. The Council notes that the implementation of the 2007 budget is also not fully consistent with the April 2007 Eurogroup orientations for budgetary policies.

| (5) | The budgetary strategy outlined in the programme aims at speeding up fiscal consolidation towards the medium-term objective (MTO) of a balanced position in structural terms, by reducing the structural deficit by more than 0,5 percentage point of GDP per year, in line with the invitation of Council opinion of 27 February 2007 on the previous update of the stability programme ‘to strengthen the adjustment towards the MTO’. In particular, the MTO is planned to be achieved earlier than the target year set in the previous update (2012), although still beyond the programme horizon (2010). The programme aims at attaining a balanced position in nominal terms by 2010, from a deficit of 2,75 % of GDP in 2007. The primary surplus is projected to improve to 3,75 % of GDP in 2010 from 1,25 % in 2007. The planned adjustment is mainly revenue-based, stemming partly from the implementation of discretionary measures in indirect taxes and real estate taxation and partly from improving the tax system and intensifying the fight against tax evasion and fraud. While overall expenditure declines only marginally in terms of GDP, its composition is planned to shift, with social payments rising by 1 percentage point of GDP, broadly offset by cuts in intermediate consumption. Taking into account the mechanical impact of the recent GDP revision, the budgetary target presented in the programme is broadly similar to the one in the previous update for 2008 and improved for 2009 against a broadly comparable macroeconomic scenario. Government gross debt, estimated at 93,4 % of GDP in 2007, clearly above the 60 % of GDP Treaty reference value, is projected to decline by over 10 percentage points over the programme period. |
| --- | --- |

(5)

The budgetary strategy outlined in the programme aims at speeding up fiscal consolidation towards the medium-term objective (MTO) of a balanced position in structural terms, by reducing the structural deficit by more than 0,5 percentage point of GDP per year, in line with the invitation of Council opinion of 27 February 2007 on the previous update of the stability programme ‘to strengthen the adjustment towards the MTO’. In particular, the MTO is planned to be achieved earlier than the target year set in the previous update (2012), although still beyond the programme horizon (2010). The programme aims at attaining a balanced position in nominal terms by 2010, from a deficit of 2,75 % of GDP in 2007. The primary surplus is projected to improve to 3,75 % of GDP in 2010 from 1,25 % in 2007. The planned adjustment is mainly revenue-based, stemming partly from the implementation of discretionary measures in indirect taxes and real estate taxation and partly from improving the tax system and intensifying the fight against tax evasion and fraud. While overall expenditure declines only marginally in terms of GDP, its composition is planned to shift, with social payments rising by 1 percentage point of GDP, broadly offset by cuts in intermediate consumption. Taking into account the mechanical impact of the recent GDP revision, the budgetary target presented in the programme is broadly similar to the one in the previous update for 2008 and improved for 2009 against a broadly comparable macroeconomic scenario. Government gross debt, estimated at 93,4 % of GDP in 2007, clearly above the 60 % of GDP Treaty reference value, is projected to decline by over 10 percentage points over the programme period.

| (6) | The budgetary outcomes could be worse than projected in the programme. The increase in tax revenues planned for 2008 is based on slightly favourable assumptions and reflects a possibly optimistic assessment of the efforts to avoid tax evasion and fraud. However, the effective implementation of revenue-enhancing discretionary measures in 2008 and the envisaged reforms to improve the institutional setting and transparency of the budgetary process based on the performance/programme budgeting on a multi-annual basis, are expected to generate positive effects on the budgetary outcome in the medium-term, although the precise budgetary impact remains uncertain. For 2009 and 2010, the programme does not underpin budgetary targets with corresponding measures, while it assumes a favourable macroeconomic scenario. In view of these risks to the budgetary targets, which are compounded by uncertainty about sizable future stock-flow adjustments, the evolution of the debt ratio could be less favourable than projected in the programme, especially after 2008. |
| --- | --- |

(6)

The budgetary outcomes could be worse than projected in the programme. The increase in tax revenues planned for 2008 is based on slightly favourable assumptions and reflects a possibly optimistic assessment of the efforts to avoid tax evasion and fraud. However, the effective implementation of revenue-enhancing discretionary measures in 2008 and the envisaged reforms to improve the institutional setting and transparency of the budgetary process based on the performance/programme budgeting on a multi-annual basis, are expected to generate positive effects on the budgetary outcome in the medium-term, although the precise budgetary impact remains uncertain. For 2009 and 2010, the programme does not underpin budgetary targets with corresponding measures, while it assumes a favourable macroeconomic scenario. In view of these risks to the budgetary targets, which are compounded by uncertainty about sizable future stock-flow adjustments, the evolution of the debt ratio could be less favourable than projected in the programme, especially after 2008.

| (7) | In view of this risk assessment, the budgetary stance in the update may not be sufficient to ensure that the MTO is achieved just after the end of the programme period, as implied by the programme. In addition, a sufficient safety margin against breaching the 3 % of GDP deficit threshold with normal macroeconomic fluctuations may not be provided before 2010. The update plans an adjustment towards the MTO above 0,5 percentage point of GDP per year, in line with the Stability and Growth Pact and higher compared with the previous update. However, the adjustment should be backed up with measures from 2009 onwards, in view of the risks identified above. The Council notes that as the structural adjustment planned for 2008 is higher than foreseen in the previous update, the plans for 2008 are consistent with the April 2007 Eurogroup orientations for budgetary policies. However the risks identified above should be addressed. Finally, taking into account these risks, the debt ratio seems to be sufficiently diminishing towards the reference value over the programme period. However it remains much higher than the reference value of 60 % throughout the update horizon. In addition, the adjustment path has slowed down and is conditional on ambitious deficit targets. |
| --- | --- |

(7)

In view of this risk assessment, the budgetary stance in the update may not be sufficient to ensure that the MTO is achieved just after the end of the programme period, as implied by the programme. In addition, a sufficient safety margin against breaching the 3 % of GDP deficit threshold with normal macroeconomic fluctuations may not be provided before 2010. The update plans an adjustment towards the MTO above 0,5 percentage point of GDP per year, in line with the Stability and Growth Pact and higher compared with the previous update. However, the adjustment should be backed up with measures from 2009 onwards, in view of the risks identified above. The Council notes that as the structural adjustment planned for 2008 is higher than foreseen in the previous update, the plans for 2008 are consistent with the April 2007 Eurogroup orientations for budgetary policies. However the risks identified above should be addressed. Finally, taking into account these risks, the debt ratio seems to be sufficiently diminishing towards the reference value over the programme period. However it remains much higher than the reference value of 60 % throughout the update horizon. In addition, the adjustment path has slowed down and is conditional on ambitious deficit targets.

| (8) | Greece appears to be at high risk with regard to the sustainability of public finances. The long-term budgetary impact of ageing cannot be duly assessed as long as commonly agreed long-term projections of pension expenditure are not available. However, it is likely to be well above the EU average. According to the latest available information dating from the 2002 stability programme update, a substantial increase in pension expenditure as a share of GDP is projected over the long-term. The budgetary position in 2007 as estimated in the programme, which is similar to the starting position of the previous programme, constitutes a risk to sustainable public finances even before considering the long-term budgetary impact of an ageing population. Moreover, the current level of gross debt is well above the Treaty reference value. Reducing it requires achieving high primary surpluses for a long period of time. Consolidating the public finances as planned together with continuing the on-going reform in the healthcare system and reforming the pension system aiming at containing the likely significant increase in age-related expenditures would contribute to reducing risks to the long-term sustainability of public finances. |
| --- | --- |

(8)

Greece appears to be at high risk with regard to the sustainability of public finances. The long-term budgetary impact of ageing cannot be duly assessed as long as commonly agreed long-term projections of pension expenditure are not available. However, it is likely to be well above the EU average. According to the latest available information dating from the 2002 stability programme update, a substantial increase in pension expenditure as a share of GDP is projected over the long-term. The budgetary position in 2007 as estimated in the programme, which is similar to the starting position of the previous programme, constitutes a risk to sustainable public finances even before considering the long-term budgetary impact of an ageing population. Moreover, the current level of gross debt is well above the Treaty reference value. Reducing it requires achieving high primary surpluses for a long period of time. Consolidating the public finances as planned together with continuing the on-going reform in the healthcare system and reforming the pension system aiming at containing the likely significant increase in age-related expenditures would contribute to reducing risks to the long-term sustainability of public finances.

| (9) | The stability programme is consistent to some extent with the October 2007 implementation report of the national reform programme (NRP). While the measures in the area of public finances envisaged in the stability programme are consistent with those foreseen in the NRP, the stability programme contains only a partial qualitative assessment of the overall impact of the NRP within the medium-term fiscal strategy. According to the programme, the majority of the measures and actions planned for 2008, included in the implementation report of the NRP, and the relevant budgetary provisions have been included in the 2008 Budget Law. However, no systematic information on the direct budgetary costs or savings of the main reforms envisaged in the national reform programme is provided and, excluding 2008, budgetary projections do not explicitly take into account the public finance implications of the actions outlined in the implementation report of the NRP. |
| --- | --- |

(9)

The stability programme is consistent to some extent with the October 2007 implementation report of the national reform programme (NRP). While the measures in the area of public finances envisaged in the stability programme are consistent with those foreseen in the NRP, the stability programme contains only a partial qualitative assessment of the overall impact of the NRP within the medium-term fiscal strategy. According to the programme, the majority of the measures and actions planned for 2008, included in the implementation report of the NRP, and the relevant budgetary provisions have been included in the 2008 Budget Law. However, no systematic information on the direct budgetary costs or savings of the main reforms envisaged in the national reform programme is provided and, excluding 2008, budgetary projections do not explicitly take into account the public finance implications of the actions outlined in the implementation report of the NRP.

| (10) | The budgetary strategy in the programme is broadly consistent with the country-specific broad economic policy guidelines and the guidelines for euro area Member States in the area of budgetary policies issued in the context of the Lisbon strategy. |
| --- | --- |

(10)

The budgetary strategy in the programme is broadly consistent with the country-specific broad economic policy guidelines and the guidelines for euro area Member States in the area of budgetary policies issued in the context of the Lisbon strategy.

| (11) | As regards the data requirements specified in the code of conduct for stability and convergence programmes, the programme provides some gaps in the required and optional data (8). However, it deviates on some material points from the model structure specified in the code of conduct (9). |
| --- | --- |

(11)

As regards the data requirements specified in the code of conduct for stability and convergence programmes, the programme provides some gaps in the required and optional data (8). However, it deviates on some material points from the model structure specified in the code of conduct (9).

The overall conclusion is that the programme envisages speeding up the reduction of the budget deficit, in a context of strong growth, to achieve a nominal budget balance in 2010, although the MTO is not planned to be achieved in structural terms within the programme period. This consolidation, which relies on a prompt implementation of the 2008 budget and a significant increase in tax revenues throughout the programme horizon, is subject to risks as the underlying macroeconomic scenario is favourable and the revenue-enhancing measures are not fully spelled out after 2008. Moreover, there are uncertainties about sizeable projected stock-flow adjustments. Also, the reliance on results from the fight against tax evasion is significant and only partly backed up with reforms in tax collection. In addition, the planned cutbacks in some expenditure items (as a share of GDP) are not substantiated by specific measures and partly offset by plans to increase social payments. Ensuring a strong fiscal consolidation path would help address the imbalances of the Greek economy, notably persistent inflation, competitiveness losses and a large external deficit. The level of debt which remains among the highest in the euro area, coupled with the projected increase in age-related spending, will affect negatively the long-term sustainability of public finances, which remains at high risk.

In view of the above assessment, Greece is invited to:

| (i) | carry out the envisaged adjustment towards the MTO, reduce the debt-to-GDP ratio accordingly, and use any budgetary overperformance to speed up the consolidation process to reach the MTO within the programme period; |
| --- | --- |

(i)

carry out the envisaged adjustment towards the MTO, reduce the debt-to-GDP ratio accordingly, and use any budgetary overperformance to speed up the consolidation process to reach the MTO within the programme period;

| (ii) | pursue the ongoing reforms of tax administration and continue improving the budgetary process by further increasing its transparency, spelling out the medium-term budgetary framework and effectively implementing mechanisms to monitor, control and improve the efficiency of primary expenditure; |
| --- | --- |

(ii)

pursue the ongoing reforms of tax administration and continue improving the budgetary process by further increasing its transparency, spelling out the medium-term budgetary framework and effectively implementing mechanisms to monitor, control and improve the efficiency of primary expenditure;

| (iii) | in view of the level of debt and the projected increase in age-related expenditure, improve the long-term sustainability of public finances by achieving the MTO, continuing the on-going reforms in the healthcare system and reforming the pension system; updated long-term projections for age-related expenditure should be produced as soon as possible. |
| --- | --- |

(iii)

in view of the level of debt and the projected increase in age-related expenditure, improve the long-term sustainability of public finances by achieving the MTO, continuing the on-going reforms in the healthcare system and reforming the pension system; updated long-term projections for age-related expenditure should be produced as soon as possible.

The Council also notes that such policy actions would be consistent with the April 2007 Eurogroup orientations for fiscal policies.

Greece is also invited to improve compliance with the submission deadline for stability and convergence programmes specified in the code of conduct.

Comparison of key macroeconomic and budgetary projections (10)

| | 2006 | 2007 | 2008 | 2009 | 2010 |
| --- | --- | --- | --- | --- | --- |
| Real GDP
  (% change) | SP Dec 2007 | 4,2 | 4,1 | 4,0 | 4,0 | 4,0 |
| COM Nov 2007 | 4,3 | 4,1 | 3,8 | 3,7 | n.a. |
| SP Dec 2006 | 4,0 | 3,9 | 4,0 | 4,1 | n.a. |
| HICP inflation
  (%) | SP Dec 2007 | 3,3 | 2,9 | 2,8 | 2,7 | 2,6 |
| COM Nov 2007 | 3,3 | 2,8 | 3,1 | 3,1 | n.a. |
| SP Dec 2006 | 3,3 | 3,3 | 2,8 | 2,6 | n.a. |
| Output gap (11)

  (% of potential GDP) | SP Dec 2007 | 0,8 | 0,8 | 0,8 | 0,9 | 1,1 |
| COM Nov 2007 (12) | 1,1 | 1,3 | 1,2 | 1,2 | n.a. |
| SP Dec 2006 | 1,0 | 0,9 | 1,1 | 1,5 | n.a. |
| Net lending/borrowing vis-à-vis the rest of the world
  (% of GDP) | SP Dec 2007 | – 12,3 | – 12,8 | – 12,7 | – 12,5 | – 12,2 |
| COM Nov 2007 | – 9,6 | – 9,4 | – 9,5 | – 9,4 | n.a. |
| SP Dec 2006 | – 8,9 | – 7,9 | – 7,6 | – 7,3 | n.a. |
| General government balance
  (% of GDP) | SP Dec 2007 | – 2,5 | – 2,7 | – 1,6 | – 0,8 | 0,0 |
| COM Nov 2007 | – 2,5 | – 2,9 | – 1,8 | – 1,8 | n.a. |
| SP Dec 2006 | – 2,6 | – 2,4 | – 1,8 | – 1,2 | n.a. |
| SP Dec 2006 adj | – 2,4 | – 2,2 | – 1,6 | – 1,1 | n.a. |
| Primary balance
  (% of GDP) | SP Dec 2007 | 1,6 | 1,2 | 2,4 | 3,1 | 3,8 |
| COM Nov 2007 | 1,6 | 1,0 | 2,1 | 2,0 | n.a. |
| SP Dec 2006 | 2,0 | 2,0 | 2,4 | 2,9 | n.a. |
| Cyclically-adjusted balance (11)

  (% of GDP) | SP Dec 2007 | – 2,8 | – 3,1 | – 1,9 | – 1,2 | – 0,5 |
| COM Nov 2007 | – 3,0 | – 3,4 | – 2,4 | – 2,3 | n.a. |
| SP Dec 2006 | – 3,0 | – 2,8 | – 2,3 | – 1,8 | n.a. |
| Structural balance (13)

  (% of GDP) | SP Dec 2007 | – 3,2 | – 2,8 | – 2,0 | – 1,2 | – 0,5 |
| COM Nov 2007 | – 3,5 | – 3,1 | – 2,4 | – 2,3 | n.a. |
| SP Dec 2006 | – 3,4 | – 2,8 | – 2,3 | – 1,8 | n.a. |
| Government gross debt
  (% of GDP) | SP Dec 2007 | 95,3 | 93,4 | 91,0 | 87,3 | 82,9 |
| COM Nov 2007 | 95,3 | 93,7 | 91,1 | 88,8 | n.a. |
| SP Dec 2006 | 104,1 | 100,1 | 95,9 | 91,3 | n.a. |
| SP Dec 2006 adj | 95,0 | 91,3 | 87,5 | 83,3 | n.a. |
| Convergence programme (SP); Commission services' autumn 2007 economic forecasts (COM); Commission services' calculations. |

2006

2007

2008

2009

2010

Real GDP

(% change)

SP Dec 2007

4,2

4,1

4,0

4,0

4,0

COM Nov 2007

4,3

4,1

3,8

3,7

n.a.

SP Dec 2006

4,0

3,9

4,0

4,1

n.a.

HICP inflation

(%)

SP Dec 2007

3,3

2,9

2,8

2,7

2,6

COM Nov 2007

3,3

2,8

3,1

3,1

n.a.

SP Dec 2006

3,3

3,3

2,8

2,6

n.a.

Output gap (11)

(% of potential GDP)

SP Dec 2007

0,8

0,8

0,8

0,9

1,1

COM Nov 2007 (12)

1,1

1,3

1,2

1,2

n.a.

SP Dec 2006

1,0

0,9

1,1

1,5

n.a.

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

(% of GDP)

SP Dec 2007

– 12,3

– 12,8

– 12,7

– 12,5

– 12,2

COM Nov 2007

– 9,6

– 9,4

– 9,5

– 9,4

n.a.

SP Dec 2006

– 8,9

– 7,9

– 7,6

– 7,3

n.a.

General government balance

(% of GDP)

SP Dec 2007

– 2,5

– 2,7

– 1,6

– 0,8

0,0

COM Nov 2007

– 2,5

– 2,9

– 1,8

– 1,8

n.a.

SP Dec 2006

– 2,6

– 2,4

– 1,8

– 1,2

n.a.

SP Dec 2006 adj

– 2,4

– 2,2

– 1,6

– 1,1

n.a.

Primary balance

(% of GDP)

SP Dec 2007

1,6

1,2

2,4

3,1

3,8

COM Nov 2007

1,6

1,0

2,1

2,0

n.a.

SP Dec 2006

2,0

2,0

2,4

2,9

n.a.

Cyclically-adjusted balance (11)

(% of GDP)

SP Dec 2007

– 2,8

– 3,1

– 1,9

– 1,2

– 0,5

COM Nov 2007

– 3,0

– 3,4

– 2,4

– 2,3

n.a.

SP Dec 2006

– 3,0

– 2,8

– 2,3

– 1,8

n.a.

Structural balance (13)

(% of GDP)

SP Dec 2007

– 3,2

– 2,8

– 2,0

– 1,2

– 0,5

COM Nov 2007

– 3,5

– 3,1

– 2,4

– 2,3

n.a.

SP Dec 2006

– 3,4

– 2,8

– 2,3

– 1,8

n.a.

Government gross debt

(% of GDP)

SP Dec 2007

95,3

93,4

91,0

87,3

82,9

COM Nov 2007

95,3

93,7

91,1

88,8

n.a.

SP Dec 2006

104,1

100,1

95,9

91,3

n.a.

SP Dec 2006 adj

95,0

91,3

87,5

83,3

n.a.

Convergence programme (SP); Commission services' autumn 2007 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://ec.europa.eu/economy_finance/about/activities/sgp/main_en.htm

(2)  The update was submitted 3 weeks beyond the 1 December deadline set in the code of conduct.

(3)  On 15 February 2008, the Greek Prime Minister presented the main pillars of the envisaged pension reform to the General Assembly of the Parliament.

(4)  The assessment takes into account notably the Commission services' autumn 2007 forecast and the Commission assessment of the October 2007 implementation report of the national reform programme.

(5)  Due to the recent upward revision of the Greek GDP series by 9,6 % from 2000 onwards, the update's targets are not directly comparable to the ones in the previous update. In order to allow for a meaningful comparison, the figures from the previous update quoted here have been recalculated to take account of the denominator effect introduced by the GDP revision.

(6)  This net one-off impact is the combination of deficit-increasing one-offs of 0,7 percentage point (mainly related to arrears to the EU budget following the GDP revision, but also to expenditures related to the summer forest fires) and deficit-reducing measures of 0,4 percentage point of GDP (deferred payments by banks to the pension funds).

(7)  OJ C 70, 27.3.2007, p. 11.

(8)  In particular, general government expenditure by function, long-term sustainability of public finances and information on debt developments (differences between cash and accruals, net accumulation of financial assets, valuation effects and other, liquid financial assets, net financial debt) are not provided.

(9)  In particular, Section 6 (‘Long-term sustainability of public finances’) provides limited information on pensions and refers to the projections included in the December 2002 update of the stability programme.

(10)  The December 2007 update uses the official revised GDP (upward revision by 9,6 %), according to the Eurostat press release of 22 October 2007 and are therefore not directly comparable with the figures of the December 2006 update. In order to allow for a meaningful comparison, the rows ‘SP Dec 2006 adj.’ show the targets in the December 2006 update as recalculated to take into account the denominator effect of the revised GDP. The Commission services' autumn 2007 forecast is based on an estimation of the revised GDP components, due to the lack of official statistical data on National Accounts by the cut-off date of the forecast.

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

(12)  Based on estimated potential growth of 3,9 %, 3,8 % and 3,7 % respectively in the period 2007-2009.

(13)  Cyclically-adjusted balance excluding one-off and other temporary measures. One-off and other temporary measures are 0,4 % of GDP in 2006, 0,3 % in 2007 and 0,1 % in 2008, deficit-reducing in 2006 and 2008, but deficit increasing in 2007, according to the most recent programme and 0,4 % of GDP in 2006 and 0,3 % in 2007, deficit-reducing in 2006 and deficit increasing in 2007 according to the Commission services' autumn forecast.

Sources:

Convergence programme (SP); Commission services' autumn 2007 economic forecasts (COM); Commission services' calculations.

---

II Information

INFORMATION FROM EUROPEAN UNION INSTITUTIONS AND BODIES

Commission

| 20.3.2008 | EN | Official Journal of the European Union | C 74/38 |
| --- | --- | --- | --- |

20.3.2008

EN

Official Journal of the European Union

C 74/38

---

Non-opposition to a notified concentration

(Case COMP/M.4687 — SACYR VALLEHERMOSO/Eiffage)

(Text with EEA relevance)

(2008/C 74/09)

On 21 February 2008, the Commission decided not to oppose the above notified concentration and to declare it compatible with the common market. This decision is based on Article 6(1)(b) of Council Regulation (EC) No 139/2004. The full text of the decision is available only in French and will be made public after it is cleared of any business secrets it may contain. It will be available:

| — | from the Europa competition website (http://ec.europa.eu/comm/competition/mergers/cases/). This website provides various facilities to help locate individual merger decisions, including company, case number, date and sectoral indexes, |
| --- | --- |

—

from the Europa competition website (http://ec.europa.eu/comm/competition/mergers/cases/). This website provides various facilities to help locate individual merger decisions, including company, case number, date and sectoral indexes,

| — | in electronic form on the EUR-Lex website under document number 32008M4687. EUR-Lex is the on-line access to European law (http://eur-lex.europa.eu). |
| --- | --- |

—

in electronic form on the EUR-Lex website under document number 32008M4687. EUR-Lex is the on-line access to European law (http://eur-lex.europa.eu).

---

| 20.3.2008 | EN | Official Journal of the European Union | C 74/38 |
| --- | --- | --- | --- |

20.3.2008

EN

Official Journal of the European Union

C 74/38

---

Non-opposition to a notified concentration

(Case COMP/M.5034 — Montagu/GIP/Biffa)

(Text with EEA relevance)

(2008/C 74/10)

On 11 March 2008, the Commission decided not to oppose the above notified concentration and to declare it compatible with the common market. This decision is based on Article 6(1)(b) of Council Regulation (EC) No 139/2004. The full text of the decision is available only in English and will be made public after it is cleared of any business secrets it may contain. It will be available:

| — | from the Europa competition website (http://ec.europa.eu/comm/competition/mergers/cases/). This website provides various facilities to help locate individual merger decisions, including company, case number, date and sectoral indexes, |
| --- | --- |

—

from the Europa competition website (http://ec.europa.eu/comm/competition/mergers/cases/). This website provides various facilities to help locate individual merger decisions, including company, case number, date and sectoral indexes,

| — | in electronic form on the EUR-Lex website under document number 32008M5034. EUR-Lex is the on-line access to European law (http://eur-lex.europa.eu). |
| --- | --- |

—

in electronic form on the EUR-Lex website under document number 32008M5034. EUR-Lex is the on-line access to European law (http://eur-lex.europa.eu).

---

IV Notices

NOTICES FROM EUROPEAN UNION INSTITUTIONS AND BODIES

Commission

| 20.3.2008 | EN | Official Journal of the European Union | C 74/39 |
| --- | --- | --- | --- |

20.3.2008

EN

Official Journal of the European Union

C 74/39

---

Euro exchange rates (1)

19 March 2008

(2008/C 74/11)

1 euro=

| | Currency | Exchange rate |
| --- | --- | --- |
| USD | US dollar | 1,5692 |
| JPY | Japanese yen | 156,16 |
| DKK | Danish krone | 7,4593 |
| GBP | Pound sterling | 0,7859 |
| SEK | Swedish krona | 9,4241 |
| CHF | Swiss franc | 1,5662 |
| ISK | Iceland króna | 125,06 |
| NOK | Norwegian krone | 8,0448 |
| BGN | Bulgarian lev | 1,9558 |
| CZK | Czech koruna | 25,463 |
| EEK | Estonian kroon | 15,6466 |
| HUF | Hungarian forint | 256,86 |
| LTL | Lithuanian litas | 3,4528 |
| LVL | Latvian lats | 0,6965 |
| PLN | Polish zloty | 3,5305 |
| RON | Romanian leu | 3,725 |
| SKK | Slovak koruna | 32,524 |
| TRY | Turkish lira | 1,9274 |
| AUD | Australian dollar | 1,6841 |
| CAD | Canadian dollar | 1,5635 |
| HKD | Hong Kong dollar | 12,1986 |
| NZD | New Zealand dollar | 1,9268 |
| SGD | Singapore dollar | 2,1646 |
| KRW | South Korean won | 1 585,83 |
| ZAR | South African rand | 12,576 |
| CNY | Chinese yuan renminbi | 11,0833 |
| HRK | Croatian kuna | 7,2565 |
| IDR | Indonesian rupiah | 14 413,1 |
| MYR | Malaysian ringgit | 4,9869 |
| PHP | Philippine peso | 65,122 |
| RUB | Russian rouble | 36,989 |
| THB | Thai baht | 48,881 |
| BRL | Brazilian real | 2,6414 |
| MXN | Mexican peso | 16,7379 |

Currency

Exchange rate

USD

US dollar

1,5692

JPY

Japanese yen

156,16

DKK

Danish krone

7,4593

GBP

Pound sterling

0,7859

SEK

Swedish krona

9,4241

CHF

Swiss franc

1,5662

ISK

Iceland króna

125,06

NOK

Norwegian krone

8,0448

BGN

Bulgarian lev

1,9558

CZK

Czech koruna

25,463

EEK

Estonian kroon

15,6466

HUF

Hungarian forint

256,86

LTL

Lithuanian litas

3,4528

LVL

Latvian lats

0,6965

PLN

Polish zloty

3,5305

RON

Romanian leu

3,725

SKK

Slovak koruna

32,524

TRY

Turkish lira

1,9274

AUD

Australian dollar

1,6841

CAD

Canadian dollar

1,5635

HKD

Hong Kong dollar

12,1986

NZD

New Zealand dollar

1,9268

SGD

Singapore dollar

2,1646

KRW

South Korean won

1 585,83

ZAR

South African rand

12,576

CNY

Chinese yuan renminbi

11,0833

HRK

Croatian kuna

7,2565

IDR

Indonesian rupiah

14 413,1

MYR

Malaysian ringgit

4,9869

PHP

Philippine peso

65,122

RUB

Russian rouble

36,989

THB

Thai baht

48,881

BRL

Brazilian real

2,6414

MXN

Mexican peso

16,7379

---

(1)

Source: reference exchange rate published by the ECB.

---

NOTICES FROM MEMBER STATES

| 20.3.2008 | EN | Official Journal of the European Union | C 74/40 |
| --- | --- | --- | --- |

20.3.2008

EN

Official Journal of the European Union

C 74/40

---

Information pursuant to Council Regulation (EC) No 539/2001 listing the third countries whose nationals must be in possession of visas when crossing the external borders and those whose nationals are exempt from that requirement (1)

(2008/C 74/12)

This publication is based on information communicated by the Member States to the Commission in accordance with Article 5 of the Regulation as at 5 February 2008
   (2).

In addition to the information published in the Official Journal, a regular update is available on the website of the Directorate-General for Justice, Freedom and Security
   (3).

1.   Exemptions from the visa requirement by virtue of Article 4(1)

1.1.   The visa requirement is waived for the following categories of persons originating in the countries indicated in the left-hand column

| D | = | Holders of diplomatic passports (4) |
| --- | --- | --- |
| S | = | Holders of service passports/official passports |
| SP | = | Holders of special passports |

D

=

Holders of diplomatic passports (4)

S

=

Holders of service passports/official passports

SP

=

Holders of special passports

BNL (5)

BG

CZ

DK

DE

EE

EL

ES

FR

IT

CY

LV

LT

HU

MT

AT

PL

PT

RO

SI

SK

FI

SE

IS

NO

AFGHANISTAN

ALBANIA

D (7)

D (7)S

D (7)

D (7)

D (7)

D (7)

D (7)S

D (7)S

D (7)

D (7)

D (7)

D (7)

D (7)

D (7)S

D (7)

D (7)S

D (7)S

D (7)

D (7)

D (7)S

D (7)S

D (7)

D (7)

D (8)

ALGERIA

D

DS

D

DS

D

DS

D

DS

ANGOLA

D

DS

ANTIGUA AND BARBUDA

DS

ARMENIA

D

DS

DS

D

DS

D

DS

DS

AZERBAIJAN

DS

DS

D

DS

DS

BAHAMAS

DS

BAHRAIN

BANGLADESH

BARBADOS

DS

DS

BELARUS

DS

D

D (6)

DS (6)

DS

BELIZE

D

D

BENIN

DS

DS

BHUTAN

BOLIVIA

DS

DS

DS

DS

DS

DS

DS

DS

DS + SP

DS

DS

DS

DS

DS

DS

DS

BOSNIA AND HERZEGOVINA

D (7)

D (7)S

D (7)

D (7)

D (7)

D (7)

D (7)

D (7)S

D (7)

D (7)

D (7)

D (7)

D (7)

D (7)S

D (7)

D (7)

D (7)

D (7)

D (7)S (6)

D (7)S

D (7)S

D (7)

D (7)

BOTSWANA

DS

BURKINA FASO

DS

BURUNDI

CAMBODIA

DS

DS + SP

CAMEROON

CAPE VERDE

DS

CENTRAL AFRICAN REPUBLIC

DS

CHAD

D

DS

CHINA (PEOPLE'S REPUBLIC OF)

DS (7)

DS

DS

DS

DS

DS

DS

DS

DS + SP

COLOMBIA

DS

DS

DS

DS

DS

DS

DS

DS

COMOROS

CONGO

DS

CONGO (DEMOCRATIC REPUBLIC OF)

CÔTE D'IVOIRE

DS

CUBA

DS

DS

D

DS

DJIBOUTI

DOMINICA

DS

DOMINICAN REPUBLIC

ECUADOR

DS

DS

DS

DS

D

DS

DS + SP

DS + SP

D

EGYPT

DS

DS

DS

DS

DS

DS + SP

EQUATORIAL GUINEA

ERITREA

ETHIOPIA

FIJI

FORMER YUGOSLAV REPUBLIC OF MACEDONIA

D (7)

D (7)S

D (7)

D (7)

D (7)

D (7)S

D (7)S

D (7)S

D (7)

D (7)S

D (7)

D (7)

D (7)

D (7)S

D (7)S

D (7)S

D (7)

D (7)

D (7)S

D (7)S

D (7)S

D (7)

D (7)S

DS

GABON

D

GAMBIA

DS

D

GEORGIA

D

D

DS

D

DS

DS

GHANA

DS

D

DS

GRENADA

GUINEA

D

DS

GUINEA-BISSAU

GUYANA

DS

D

HAITI

INDIA

DS

D

DS

D

D

INDONESIA

DS

D

IRAN

DS (6)

DS

D

D

D (6)

D

IRAQ

JAMAICA

DS

D

D

DS

D

JORDAN

D

D

DS

KAZAKHSTAN

DS

D

D

DS

KENYA

D

D

KIRIBATI

KOREA (NORTH)

DS

KUWAIT

DS

D

KYRGYZSTAN

DS

D

DS

LAOS

DS

DS

DS

DS + SP

LEBANON

D

LESOTHO

DS

D

LIBERIA

LIBYA

DS

MADAGASCAR

MALAWI

DS

D

MALDIVES

D

DS

D

MALI

D

MARSHALL ISLANDS

D

MAURITANIA

DS

D

DS

MAURITIUS

MICRONESIA

MOLDOVA

D (7)

D (7)S

D (7)

D (7)

D (7)

D (7)

D (7)

D (7)

D (7)

D (7)

D (7)S

D (7)

D (7)

D (7)S

D (7)

D (7)

D (7)

D (7)

D (7)S

D (7)

D (7)S

D (7)

D (7)

MONGOLIA

DS (6)

DS

DS

D

DS

DS

MONTENEGRO

D (7)

D (7)S

D (7)

D (7)

D (7)

D (7)

D (7)S

D (7)

D (7)

D (7)S

D (7)S

D (7)

D (7)

D (7)S

D (7)S

D (7)S

D (7)

D (7)

D (7)S

D (7)S

D (7)S

D (7)

D (7)

MOROCCO

DS

DS

DS

DS

D

DS

D

D

DS

D

DS

D

DS

DS

DS

DS

DS

DS + SP

D

D

DS + SP

MOZAMBIQUE

DS

MYANMAR

NAMIBIA

D

D

NAURU

NEPAL

D

NIGER

DS

NIGERIA

D

NORTHERN MARIANA

OMAN

D

PAKISTAN

D

DS

DS

D

D

D

DS

DS (6)

DS

DS

DS

DS

PALAU

PAPUA NEW GUINEA

PERU

DS

DS

DS

DS

D

DS

DS

DS

DS

DS

D + SP

DS

D

DS

DS

D + SP

DS

DS + SP

DS

PHILIPPINES

DS

DS

DS

DS

DS

DS

DS

D

DS

DS

DS

DS

DS

DS

DS

DS + SP

QATAR

D

RUSSIA

D (7)

D (7)S

D (7)

D (7)

D (7)

D (7)

D (7)

D (7)

D (7)

D (7)S

D (7)

D (7)

D (7)S

D (7)

D (7)

D (7)

D (7)

D (7)S

D (7)

D (7)S

D (7)

D (7)

D (8)

RWANDA

SAINT KITTS AND NEVIS

SAINT LUCIA

SAINT VINCENT AND THE GRENADINES

SAMOA

D

SÃO TOMÉ AND PRÍNCIPE

DS

DS

SAUDI ARABIA

D

SENEGAL

D

D

D

DS

SERBIA

D (7)

D (7)S

D (7)

D (7)

D (7)

D (7)

D (7)S

D (7)S

D (7)

D (7)S

D (7)S

D (7)

D (7)

D (7)S

D (7)S

D (7)S

D (7)

D (7)

D (7)S

D (7)S

D (7)S

D (7)

D (7)

SEYCHELLES

DS

DS

D

D

SIERRA LEONE

D

DS

SOLOMON ISLANDS

SOMALIA

SOUTH AFRICA

DS

DS

D

DS

DS

DS

DS

DS

DS

DS

DS

DS

DS

DS

SRI LANKA

D

SUDAN

D

SURINAME

SWAZILAND

DS

D

D

SYRIA

D

TAJIKISTAN

DS

DS

TANZANIA

DS

THAILAND

DS

DS

DS

DS

DS

DS

D

DS

DS

DS

DS

DS

DS

DS

DS

TIMOR-LESTE

D

TOGO

DS

TONGA

TRINIDAD AND TOBAGO

DS

TUNISIA

DS

DS

D

D

DS

D

D

DS

DS

DS

DS

DS

DS

DS

DS

DS + SP

D

D

D

TURKEY

DS

DS (6)

DS

DS + SP

DS + SP

D

DS

DS + SP

DS + SP

DS + SP

DS + SP

DS + SP

DS

D

DS

DS

D

DS + SP

DS + SP

DS + SP

DS + SP

DS + SP

DS + SP

DS + SP

TURKMENISTAN

DS

D

DS

DS

TUVALU

UGANDA

DS

D

UKRAINE

D (7)

D (7)S

D (7)

D (7)

D (7)

D (7)

D (7)

D (7)

D (7)

D (7)

D (7)S

D (7)

D (7)S

D (7)S

D (7)

D (7)

D (7)

D (7)

D (7)S

D (7)

D (7)S

D (7)

D (7)

UNITED ARAB EMIRATES

D + SP

D + SP

DS

D + SP

D

UZBEKISTAN

D

D

D

DS

VANUATU

D

VIETNAM

DS

D

D

DS

D

D

YEMEN

DS

D

D

DS + SP

ZAMBIA

D

DS

ZIMBABWE

DS

ENTITIES AND TERRITORIAL AUTHORITIES THAT ARE NOT RECOGNISED AS STATES BY AT LEAST ONE MEMBER STATE

BNL  (5)

BG

CZ

DK

DE

EE

EL

ES

FR

IT

CY

LV

LT

HU

MT

AT

PL

PT

RO

SI

SK

FI

SE

IS

NO

PALESTINIAN AUTHORITY

D

TAIWAN

1.2.   Visa exemption for other categories mentioned in Article 4(1)

| — | Civilian air crew members:


  Civilian air crew members are, in principle, exempted from the visa requirement by the Member States if they hold licences and certificates within the meaning of Annexes 1 to 9 to the Chicago Convention on International Civil Aviation.
  However, the visa requirement is maintained:






  — | by France for crew members who are nationals of countries who are non-signatories of the Chicago Convention. |
| --- | --- | --- |

—

Civilian air crew members:

Civilian air crew members are, in principle, exempted from the visa requirement by the Member States if they hold licences and certificates within the meaning of Annexes 1 to 9 to the Chicago Convention on International Civil Aviation.

However, the visa requirement is maintained:

—

by France for crew members who are nationals of countries who are non-signatories of the Chicago Convention.

| — | Civilian sea crew members:


  Civilian sea crew members may be exempted from the visa requirement by the Member States if they hold seafarer's identity documents issued in accordance with the International Labour Organisation Conventions (No 108 of 1958 and No 185 of 2003) or the IMO London Convention of 9 April 1965 (FAL) on the facilitation of international maritime traffic.
  In practice:






  — | in the case of shore leave: the exemption is applied to crew members with the exception of Sweden and Germany, |
| --- | --- | --- |

—

Civilian sea crew members:

Civilian sea crew members may be exempted from the visa requirement by the Member States if they hold seafarer's identity documents issued in accordance with the International Labour Organisation Conventions (No 108 of 1958 and No 185 of 2003) or the IMO London Convention of 9 April 1965 (FAL) on the facilitation of international maritime traffic.

In practice:

—

in the case of shore leave: the exemption is applied to crew members with the exception of Sweden and Germany,

| — | in the case of transit: the visa requirement is maintained for crew members by all States with the exception of Norway. |
| --- | --- |

—

in the case of transit: the visa requirement is maintained for crew members by all States with the exception of Norway.

Comment by Norway: Holders of a Philippine ‘Seafarer's Identification and Record Book’ and/or a Philippine national passport are exempted from the visa requirement (see the shipping agreement of October 1999 between the Philippines and Norway). The holder must produce written confirmation from the shipowner or the shipowner's representative that the holder is to take up a post on a ship in a Norwegian port.

| — | Civilian crew members on international inland waterways:








  — | The Rhine:
  Belgium, Germany, France, Luxembourg and the Netherlands exempt civilian crew members on the Rhine from the visa requirement provided they hold a travel document containing a trilingual stamp or comment identifying them as Rhine boatmen in accordance with the resolutions of the Central Commission for the Navigation of the Rhine. |
| --- | --- | --- |

—

Civilian crew members on international inland waterways:

—

The Rhine:

Belgium, Germany, France, Luxembourg and the Netherlands exempt civilian crew members on the Rhine from the visa requirement provided they hold a travel document containing a trilingual stamp or comment identifying them as Rhine boatmen in accordance with the resolutions of the Central Commission for the Navigation of the Rhine.

| — | The Danube:
  Germany and Austria exempt civilian crew members on the Danube from the visa requirement provided they hold a document identifying them as Danube boatmen and they are on the crew list.
  In the case of Austria, the exemption from the visa requirement is valid only for the duration of the transit, provided the company owning the ship is based abroad and the ship's crew do not leave the ship or the port. |
| --- | --- |

—

The Danube:

Germany and Austria exempt civilian crew members on the Danube from the visa requirement provided they hold a document identifying them as Danube boatmen and they are on the crew list.

In the case of Austria, the exemption from the visa requirement is valid only for the duration of the transit, provided the company owning the ship is based abroad and the ship's crew do not leave the ship or the port.

| — | Flight crew and attendants on emergency or rescue flights and other helpers in the event of a disaster or accident:


  Hungary exempts persons in this category from the visa requirement. |
| --- | --- |

—

Flight crew and attendants on emergency or rescue flights and other helpers in the event of a disaster or accident:

Hungary exempts persons in this category from the visa requirement.

| — | Laissez-passer issued by international organisations to their officials:



  General comments:

  Portugal: holders of such laissez-passer do not qualify for any visa exemption.
  Austria: beneficiaries of privileges and immunities who have been issued with a specific identity document are exempted from the visa requirement.

  Comments relating to particular organisations:







  — | Exemption from the visa requirement for officials of particular organisations:





































  Y | = | Yes |
| --- | --- | --- | --- | --- |
| N | = | No |

—

Laissez-passer issued by international organisations to their officials:

General comments:

Portugal: holders of such laissez-passer do not qualify for any visa exemption.

Austria: beneficiaries of privileges and immunities who have been issued with a specific identity document are exempted from the visa requirement.

Comments relating to particular organisations:

—

Exemption from the visa requirement for officials of particular organisations:

Y

=

Yes

N

=

No

BNL

BG

CZ

DK

DE

EE

EL

ES

FR

IT

CY

LV

LT

HU

MT

AT

PL

PT

RO

SI

SK

FI

SE

IS

NO (9)

United Nations

Y

Y

Y

Y

Y

N

N

N

Y

Y (11)

Y

Y

Y

Y

Y

Y

N

Y

Y

Y

Y (10)

Y

Y

North Atlantic Treaty Organisation

Y

Y

Y

Y

Y

Y

Y

Y

Y

Y

N

N

Y

Y

Y

Y

N

Y

Y

Customs Cooperation Council

Y

N

N

N

N

N

N

N

N

N

N

N

N

N

N

N

Council of Europe

Y (12)

Y

Y

Y

Y

Y

N

N

2.   Exemption from the visa requirement by virtue of Article 4(2)

2.1.   Visa exemption granted to school pupils who are nationals of a third country indicated in the left-hand column, reside in a third country listed in Annex II to the Regulation or in Switzerland or in Liechtenstein and are travelling in the context of a school excursion as members of a group of school pupils accompanied by a teacher from the school in question:

| S | = | School pupils |
| --- | --- | --- |

S

=

School pupils

BNL

BG

CZ

DK

DE

EE

EL

ES

FR

IT

CY (13)

LV

LT

HU

MT

AT

PL

PT

RO

SI

SK

FI

SE (14)

IS

NO

CH

LI

AFGHANISTAN

S

S

S

S

ALBANIA

S

S

S

S

ALGERIA

S

S

S

S

ANGOLA

S

S

S

S

ANTIGUA AND BARBUDA

S

S

S

S

ARMENIA

S

S

S

S

AZERBAIJAN

S

S

S

S

BAHAMAS

S

S

S

S

BAHRAIN

S

S

S

S

BANGLADESH

S

S

S

S

BARBADOS

S

S

S

S

BELARUS

S

S

S

S

BELIZE

S

S

S

S

BENIN

S

S

S

S

BHUTAN

S

S

S

S

BOLIVIA

S

S

S

S

BOSNIA AND HERZEGOVINA

S

S

S

S

BOTSWANA

S

S

S

S

BURKINA FASO

S

S

S

S

BURUNDI

S

S

S

S

CAMBODIA

S

S

S

S

CAMEROON

S

S

S

S

CAPE VERDE

S

S

S

S

CENTRAL AFRICAN REPUBLIC

S

S

S

S

CHAD

S

S

S

S

CHINA (PEOPLE'S REPUBLIC OF)

S

S

S

S

COLOMBIA

S

S

S

S

COMOROS

S

S

S

S

CONGO

S

S

S

S

CONGO (DEMOCRATIC REPUBLIC OF)

S

S

S

S

CÔTE D'IVOIRE

S

S

S

S

CUBA

S

S

S

S

DJIBOUTI

S

S

S

S

DOMINICA

S

S

S

S

DOMINICAN REPUBLIC

S

S

S

S

ECUADOR

S

S

S

S

EGYPT

S

S

S

S

EQUATORIAL GUINEA

S

S

S

S

ERITREA

S

S

S

S

ETHIOPIA

S

S

S

S

FIJI

S

S

S

S

FORMER YUGOSLAV REPUBLIC OF MACEDONIA

S

S

S

S

GABON

S

S

S

S

GAMBIA

S

S

S

S

GEORGIA

S

S

S

S

GHANA

S

S

S

S

GRENADA

S

S

S

S

GUINEA

S

S

S

S

GUINEA-BISSAU

S

S

S

S

GUYANA

S

S

S

S

HAITI

S

S

S

S

INDIA

S

S

S

S

INDONESIA

S

S

S

S

IRAN

S

S

S

S

IRAQ

S

S

S

S

JAMAICA

S

S

S

S

JORDAN

S

S

S

S

KAZAKHSTAN

S

S

S

S

KENYA

S

S

S

S

KIRIBATI

S

S

S

S

KOREA (NORTH)

S

S

S

S

KUWAIT

S

S

S

S

KYRGYZSTAN

S

S

S

S

LAOS

S

S

S

S

LEBANON

S

S

S

S

LESOTHO

S

S

S

S

LIBERIA

S

S

S

S

LIBYA

S

S

S

S

MADAGASCAR

S

S

S

S

MALAWI

S

S

S

S

MALDIVES

S

S

S

S

MALI

S

S

S

S

MARSHALL ISLANDS

S

S

S

S

MAURITANIA

S

S

S

S

MAURITIUS

S

S

S

S

MICRONESIA

S

S

S

S

MOLDOVA

S

S

S

S

MONGOLIA

S

S

S

S

MONTENEGRO

S

S

S

S

MOROCCO

S

S

S

S

MOZAMBIQUE

S

S

S

S

MYANMAR

S

S

S

S

NAMIBIA

S

S

S

S

NAURU

S

S

S

S

NEPAL

S

S

S

S

NIGER

S

S

S

S

NIGERIA

S

S

S

S

NORTHERN MARIANA

S

S

S

S

OMAN

S

S

S

S

PAKISTAN

S

S

S

S

PALAU

S

S

S

S

PAPUA NEW GUINEA

S

S

S

S

PERU

S

S

S

S

PHILIPPINES

S

S

S

S

QATAR

S

S

S

S

RUSSIA

S

S

S

S

RWANDA

S

S

S

S

SAINT KITTS AND NEVIS

S

S

S

S

SAINT LUCIA

S

S

S

S

SAINT VINCENT AND THE GRENADINES

S

S

S

S

SAMOA

S

S

S

S

SÃO TOMÉ AND PRÍNCIPE

S

S

S

S

SAUDI ARABIA

S

S

S

S

SENEGAL

S

S

S

S

SERBIA

S

S

S

S

SEYCHELLES

S

S

S

S

SIERRA LEONE

S

S

S

S

SOLOMON ISLANDS

S

S

S

S

SOMALIA

S

S

S

S

SOUTH AFRICA

S

S

S

S

SRI LANKA

S

S

S

S

SUDAN

S

S

S

S

SURINAME

S

S

S

S

SWAZILAND

S

S

S

S

SYRIA

S

S

S

S

TAJIKISTAN

S

S

S

S

TANZANIA

S

S

S

S

THAILAND

S

S

S

S

TIMOR-LESTE

S

S

S

S

TOGO

S

S

S

S

TONGA

S

S

S

S

TRINIDAD AND TOBAGO

S

S

S

S

TUNISIA

S

S

S

S

TURKEY

S

S

S

S

TURKMENISTAN

S

S

S

S

TUVALU

S

S

S

S

UGANDA

S

S

S

S

UKRAINE

S

S

S

S

UNITED ARAB EMIRATES

S

S

S

S

UZBEKISTAN

S

S

S

S

VANUATU

S

S

S

S

VIETNAM

S

S

S

S

YEMEN

S

S

S

S

ZAMBIA

S

S

S

S

ZIMBABWE

S

S

S

S

2.2.   Visa exemption for refugees and stateless persons who are legally resident in one of the countries indicated in the left-hand column and are in possession of a travel document issued by the competent authorities of that country

| R | = | Visa-exempted refugees |
| --- | --- | --- |
| A | = | Visa-exempted stateless persons |

R

=

Visa-exempted refugees

A

=

Visa-exempted stateless persons

BNL

BG

CZ

DK

DE (15)

EE

EL

ES

FR

IT

CY

LV

LT

HU

MT

AT

PL

PT

RO

SI

SK

FI

SE

IS

NO

ANDORRA

R (16)A (16)

RA

RA

R

ARGENTINA

RA

RA

R

AUSTRALIA

RA

RA

R

BRAZIL

RA

RA

R

BRUNEI DARUSSALAM

R (16)A (16)

RA

R

CANADA

RA (16)

RA

R

CHILE

RA (16)

RA

R

COSTA RICA

RA

RA

R

CROATIA

RA

RA

R

EL SALVADOR

RA (16)

RA

R

GUATEMALA

RA

RA

R

HOLY SEE

—

—

RA (16)

—

—

—

—

RA

—

—

R

—

—

—

—

HONDURAS

RA (16)

RA

R

ISRAEL

RA

RA

R

JAPAN

RA (16)

RA

R

KOREA (SOUTH)

RA

RA

R

MALAYSIA

R (16)A (16)

RA

R

MEXICO

RA

RA

R

MONACO

RA (16)

RA

RA

R

NEW ZEALAND

RA (16)

RA

R

NICARAGUA

RA (16)

RA

R

PANAMA

RA (16)

RA

R

PARAGUAY

RA (16)

RA

R

SAN MARINO

R (16)A (16)

RA

R

SINGAPORE

R (16)A (16)

RA

R

UNITED STATES OF AMERICA (USA)

RA (16)

RA

R

URUGUAY

RA (16)

RA

R

VENEZUELA

R (16)A (16)

RA

R

SPECIAL ADMINISTRATIVE REGIONS OF THE PEOPLE'S REPUBLIC OF CHINA

BNL

BG

CZ

DK

DE (15)

EE

EL

ES

FR

IT

CY

LV

LT

HU

MT

AT

PL

PT

RO

SI

SK

FI

SE

IS

NO

HONG KONG S.A.R.

R (16)A

RA

MACAO S.A.R.

R (16)A

RA

2.3.   Visa exemption granted by Member States to members of the armed forces travelling on NATO or Partnership for Peace business and holders of identification and movement orders provided for by the Agreement of 19 June 1951 between the Parties to the North Atlantic Treaty Organisation regarding the status of their forces

| X | = | Visa exemption |
| --- | --- | --- |

X

=

Visa exemption

BNL

BG

CZ

DK

DE

EE

EL

ES

FR

IT

CY

LV

LT

HU

MT

AT

PL

PT

RO

SI

SK

FI

SE

IS

NO

Members of the armed forces travelling on NATO or Partnership for Peace business and holders of identification and movement orders provided for by the Agreement of 19 June 1951

X (17)

X

X

X

X

X

X

X (18)

3.   Exceptions to the exemption from the visa requirement by virtue of Article 4(1)

A visa obligation is applied to the following categories of persons originating in the countries indicated in the left-hand column

| D | = | Holders of diplomatic passports |
| --- | --- | --- |
| A | = | Civilian aircrew |
| S | = | Holders of service passports/official passports |
| C | = | Civilian sea crew |

D

=

Holders of diplomatic passports

A

=

Civilian aircrew

S

=

Holders of service passports/official passports

C

=

Civilian sea crew

BNL

BG

CZ

DK

DE

EE

EL

ES

FR

IT

CY

LV

LT

HU

MT

AT

PL

PT

RO

SI

SK

FI

SE

IS

NO

AUSTRALIA

DS

DSAC

DS (24)

ISRAEL

SA (19)C (20)
   (23)

DSAC

MEXICO

DSAC

DS

UNITED STATES OF AMERICA (USA)

DS

DS

DS (21)
   (23)

DS (22)A (19)C (20)
   (23)

DSAC

DS (25)

DS (22)

4.   Exceptions to the exemption from the visa requirement by virtue of Article 4(3)

Persons originating in the countries indicated in the left-hand column are subject to the visa requirement when carrying out a paid activity during their stay

| E | = | Paid activity |
| --- | --- | --- |

E

=

Paid activity

BNL

BG (30)

CZ

DK

DE (29)

EE (28)

EL

ES

FR

IT

CY (33)

LV

LT (31)

HU

MT (34)

AT (35)

PL

PT

RO

SI

SK

FI (32)

SE

IS

NO

ANDORRA

E

E

E

E

E (26)

E

E

E

E

E

E

E

E

E

E

E

ARGENTINA

E

E

E

E

E

E

E

E

E

E

E

E

E

E

E

E

AUSTRALIA

E

E

E

E

E

E

E

E

E

E

E

E

E

E

E

E

BRAZIL

E

E

E

E

E

E

E

E

E

E

E

E

E

E

E

E

E

BRUNEI DARUSSALAM

E

E

E

E

E

E

E

E

E

E

E

E

E

E

E

E

E

CANADA

E

E

E

E

E (27)

E

E

E

E

E

E

E

E

E

E

CHILE

E

E

E

E

E

E

E

E

E

E

E

E

E

E

E

E

COSTA RICA

E

E

E

E

E

E

E

E

E

E

E

E

E

E

E

E

CROATIA

E

E

E

E

E

E

E

E

E

E

E

E

E

E

E

E

EL SALVADOR

E

E

E

E

E

E

E

E

E

E

E

E

E

E

E

E

GUATEMALA

E

E

E

E

E

E

E

E

E

E

E

E

E

E

E

E

HOLY SEE

E

E

E

E

E

E

E

E

E

E

E

E

E

E

HONDURAS

E

E

E

E

E

E

E

E

E

E

E

E

E

E

E

E

ISRAEL

E

E

E

E

E

E

E

E

E

E

E

E

E

E

E

JAPAN

E

E

E

E

E

E

E

E

E

E

E

E

E

E

E

KOREA (SOUTH)

E

E

E

E

E

E

E

E

E

E

E

E

E

E

E

E

MALAYSIA

E

E

E

E

E

E

E

E

E

E

E

E

E

E

E

E

MEXICO

E

E

E

E

E

E

E

E

E

E

E

E

E

E

E

E

E

MONACO

E

E

E

E

E

E

E

E

E

E

E

E

E

E

E

E

NEW ZEALAND

E

E

E

E

E

E

E

E

E

E

E

E

E

E

E

NICARAGUA

E

E

E

E

E

E

E

E

E

E

E

E

E

E

E

E

PANAMA

E

E

E

E

E

E

E

E

E

E

E

E

E

E

E

E

PARAGUAY

E

E

E

E

E

E

E

E

E

E

E

E

E

E

E

E

SAN MARINO

E

E

E

E

E

E

E

E

E

E

E

E

E

E

E

SINGAPORE

E

E

E

E

E

E

E

E

E

E

E

E

E

E

E

E

E

UNITED STATES OF AMERICA (USA)

E

E

E

E

E

E

E

E

E

E

E

E

E

E

E

URUGUAY

E

E

E

E

E

E

E

E

E

E

E

E

E

E

E

E

VENEZUELA

E

E

E

E

E

E

E

E

E

E

E

E

E

E

E

E

E

BNL

BG (30)

CZ

DK

DE (29)

EE (28)

EL

ES

FR

IT

CY (33)

LV

LT (31)

HU

MT (34)

AT (35)

PL

PT

RO

SI

SK

FI (32)

SE

IS

NO

HONG KONG S.A.R.

E

E

E

E

E

E

E

E

E

E

E

E

E

E

E

E

E

MACAO S.A.R.

E

E

E

E

E

E

E

E

E

E

E

E

E

E

E

E

E

---

(1)  OJ L 81, 21.3.2001, p. 1.

(2)  In accordance with Article 1 of the protocol on the position of Ireland and the United Kingdom annexed to the Treaty on the European Union and to the European Community Treaty and without prejudice to Article 4 thereof, the provisions of Council Regulation (EC) No 539/2001 are not applied by Ireland or the United Kingdom.

(3)  http://ec.europa.eu/justice_home/doc_centre/freetravel/visa/doc_freetravel_visa_en.htm

(4)  The exemption from the visa requirement for holders of diplomatic passports indicated in the table refers to diplomats travelling on official business for short stays, without prejudice to the rules applying to diplomats travelling to the Member States where they are or will be accredited.

(5)  Benelux: In application of the Convention of 11 April 1960, and in particular Article 3 thereof, the Benelux countries have a harmonised policy on short-stay visas for third countries.

(6)  Up to 30 days' stay.

(7)  In compliance with the Agreements between the European Community and the following countries on the facilitation of the issuance of visas:

| — | The Russian Federation (OJ L 129, 17.5.2007, p. 27). The agreement entered into force on 1 June 2007. |
| --- | --- |

—

The Russian Federation (OJ L 129, 17.5.2007, p. 27). The agreement entered into force on 1 June 2007.

| — | The Republic of Albania (OJ L 334, 19.12.2007, p. 85). The agreement entered into force on 1 January 2008. |
| --- | --- |

—

The Republic of Albania (OJ L 334, 19.12.2007, p. 85). The agreement entered into force on 1 January 2008.

| — | Bosnia and Herzegovina (OJ L 334, 19.12.2007, p. 97). The agreement entered into force on 1 January 2008. |
| --- | --- |

—

Bosnia and Herzegovina (OJ L 334, 19.12.2007, p. 97). The agreement entered into force on 1 January 2008.

| — | The former Yugoslav Republic of Macedonia (OJ L 334, 19.12.2007, p. 125). The agreement entered into force on 1 January 2008. |
| --- | --- |

—

The former Yugoslav Republic of Macedonia (OJ L 334, 19.12.2007, p. 125). The agreement entered into force on 1 January 2008.

| — | The Republic of Montenegro (OJ L 334, 19.12.2007, p. 109). The agreement entered into force on 1 January 2008. |
| --- | --- |

—

The Republic of Montenegro (OJ L 334, 19.12.2007, p. 109). The agreement entered into force on 1 January 2008.

| — | The Republic of Serbia (OJ L 334, 19.12.2007, p. 137). The agreement entered into force on 1 January 2008. |
| --- | --- |

—

The Republic of Serbia (OJ L 334, 19.12.2007, p. 137). The agreement entered into force on 1 January 2008.

| — | The Republic of Moldova (OJ L 334, 19.12.2007, p. 169). The agreement entered into force on 1 January 2008. |
| --- | --- |

—

The Republic of Moldova (OJ L 334, 19.12.2007, p. 169). The agreement entered into force on 1 January 2008.

| — | Ukraine (OJ L 332, 18.12.2007, p. 68). The agreement entered into force on 1 January 2008. |
| --- | --- |

—

Ukraine (OJ L 332, 18.12.2007, p. 68). The agreement entered into force on 1 January 2008.

(8)  The accredited ambassador and the ambassador's family are exempted from the visa requirement.

| — | Holy See (Vatican City State)
  Holders of Vatican passports, irrespective of their nationality, are exempted from the visa requirement by Germany, Sweden, the Czech Republic, Latvia, Denmark, Slovakia, Poland, France, Bulgaria, Slovenia and Finland.
  Holders of valid identity cards issued by the authorities of the Vatican City State are exempted from the visa requirement by Denmark and Slovakia.
  Holders of valid ordinary, diplomatic or service passports issued by the competent authorities of the Vatican City State may enter the Benelux countries without a visa.
  Holders of diplomatic and service passports of the Vatican City State are exempted from the visa requirement by Austria. |
| --- | --- |

—

Holy See (Vatican City State)

Holders of Vatican passports, irrespective of their nationality, are exempted from the visa requirement by Germany, Sweden, the Czech Republic, Latvia, Denmark, Slovakia, Poland, France, Bulgaria, Slovenia and Finland.

Holders of valid identity cards issued by the authorities of the Vatican City State are exempted from the visa requirement by Denmark and Slovakia.

Holders of valid ordinary, diplomatic or service passports issued by the competent authorities of the Vatican City State may enter the Benelux countries without a visa.

Holders of diplomatic and service passports of the Vatican City State are exempted from the visa requirement by Austria.

| — | Sovereign Military Order of Malta
  Holders of diplomatic and service passports of the Sovereign Military Order of Malta are exempted from the visa requirement by Poland.
  Holders of diplomatic passports of the Sovereign Military Order of Malta are exempted from the visa requirement by Austria.
  Holders of passports of the Sovereign Military Order of Malta are exempted from the visa requirement by Slovenia. |
| --- | --- |

—

Sovereign Military Order of Malta

Holders of diplomatic and service passports of the Sovereign Military Order of Malta are exempted from the visa requirement by Poland.

Holders of diplomatic passports of the Sovereign Military Order of Malta are exempted from the visa requirement by Austria.

Holders of passports of the Sovereign Military Order of Malta are exempted from the visa requirement by Slovenia.

(9)  Norway: Norway waives the visa requirement for the following persons and their spouse/cohabitant and dependent children:

| (a) | representatives to the UN; |
| --- | --- |

(a)

representatives to the UN;

| (b) | civil servants with a permanent post with the UN or in a UN special organisation; |
| --- | --- |

(b)

civil servants with a permanent post with the UN or in a UN special organisation;

| (c) | judges at the International Court or civil servants in the Court's secretariat; |
| --- | --- |

(c)

judges at the International Court or civil servants in the Court's secretariat;

| (d) | other persons acting for a special organisation of the UN or the Court; |
| --- | --- |

(d)

other persons acting for a special organisation of the UN or the Court;

| (e) | foreigners with a UN laissez-passer (issued in accordance with the special agreement with the UN). |
| --- | --- |

(e)

foreigners with a UN laissez-passer (issued in accordance with the special agreement with the UN).

United Nations: The exemption from the visa requirement indicated in the table by Member States applies to holders of UN laissez-passer.

(10)  Sweden: The exemption from the visa requirement for the United Nations applies to employees of the UN who are on duty and who hold a certificate issued by the UN to certify this.

(11)  The Republic of Cyprus requires no visa for holders of sky-blue and red UN laissez-passer. For holders of the white laissez-passer (refugees), a visa is required.

In addition, holders of the SHIRBRIG, Planning Element Official, identification card issued by the Chief of Defence in Denmark are exempted from the visa requirement by Denmark.

Customs Cooperation Council: The exemption from the visa requirement by Benelux indicated in the table applies to holders of laissez-passer issued by the Secretary-General of the Customs Cooperation Council.

(12)  Council of Europe: The exemption from the visa requirement by Benelux indicated in the table applies to holders of laissez-passer issued by the Secretary-General of the Council of Europe.

(13)  Cyprus: A national collective visa is required.

(14)  Sweden: School pupils under 18 years old.

(15)  The general requirement is that the person must hold a valid travel document issued in accordance with the rules in the Agreement of 15 October 1946 regarding the issue of travel documents to refugees, the Convention relating to the Status of Refugees of 28 July 1951 or the Convention relating to the Status of Stateless Persons of 28 September 1954. The travel document must contain an authorisation to return which has a sufficiently long period of validity.

(16)  For Germany: Applies in each case from the date of entry into force of the agreements and conventions referred to in footnote (1) on the issue of travel documents to refugees and stateless persons.

(17)  Comment by Bulgaria: The exemption from the visa requirement for the North Atlantic Treaty Organisation applies to holders of a valid travel document or a travel order issued by NATO headquarters, when they are on duty visits for a maximum of ninety (90) days during any half-year.

(18)  Comment by Norway: Norway waives the visa requirement for military personnel from a NATO Member State and for military personnel attached to an allied headquarters on an official mission with a travel order issued by the relevant authority in the sender State or in NATO. Please note that for these categories Norway also exempts their family members (spouses/cohabitant and dependent children).

Norway also waives the visa requirement for members of US, Canadian or British troops stationed in Europe and for military personnel who are going to be stationed or going to participate in exercises on Norwegian territory in accordance with the Treaty of Partnership for Peace. The exemption from the visa requirement in these categories does not include spouses and children.

(19)  France: Although the United States of America and Israel are signatories to the Chicago Convention, the visa requirement is nevertheless maintained for crew members who are nationals of those two countries.

(20)  France: Although the United States of America and Israel are signatories to the 1965 London Convention, the visa requirement is nevertheless maintained for crew members who are nationals of those two countries.

(21)  Spain: For the United States of America, holders of diplomatic or service/official passports on official missions or official visits are subject to the visa requirement. The visa is not necessary when they enter in application of the Hispanic-North American Convention of 1 May 1988.

(22)  France and Portugal: Only when the holders of diplomatic or official duty passports are on mission.

(23)  If travelling on official business.

(24)  Poland: For holders of D/S passports on mission.

(25)  Poland: For holders of D/S passports on mission (visas valid for not longer than 4 years).

(26)  Comment by Spain: Andorran nationals are exempted from the visa requirement when carrying out an economic activity during their stay, except if they exercise an independent profession.

(27)  Comment by France: For Canada, the visa requirement applies only to young Canadians coming to France under the Agreement of 3 October 2003 between the government of Canada and the government of the French Republic concerning youth exchanges.

(28)  Comment by Estonia: In order to work in Estonia, aliens must hold a work permit/residence permit for employment. Registration of short-term employment is needed for aliens who arrive/stay in Estonia either on the basis of a visa (D-type) or on a visa-free basis (unless any international agreement stipulates otherwise) and this cannot exceed a period of six months a year.

(29)  Comments by Germany: The following groups of employees are not considered as carrying out a paid activity and are therefore exempted from the visa requirement under the specified conditions:

| — | seamen holding a German seaman's book (‘Seefahrtbuch’) and a national passport issued by the authorities listed in Annex II only if they are crew members of a ship which is authorised to fly the flag of Germany or staying on the territory of Germany, |
| --- | --- |

—

seamen holding a German seaman's book (‘Seefahrtbuch’) and a national passport issued by the authorities listed in Annex II only if they are crew members of a ship which is authorised to fly the flag of Germany or staying on the territory of Germany,

| — | pilots for sea and coastal navigation exercising their profession, |
| --- | --- |

—

pilots for sea and coastal navigation exercising their profession,

| — | in navigation on the Rhine and Danube, including the Main-Danube canal, for entry in order to transport persons or goods: third-country nationals working on a ship registered in a foreign country for an enterprise with its seat in a foreign country, who have a recognised passport or, in lieu, a passport certifying their status as engaged in navigation on the Rhine or holders of a special passport recognised in lieu, for example a ‘Donauschifferausweis’ or seaman's book (‘Seefahrtbuch’) and who are on the crew list. The stay must be directly related to the aims of the navigating profession. |
| --- | --- |

—

in navigation on the Rhine and Danube, including the Main-Danube canal, for entry in order to transport persons or goods: third-country nationals working on a ship registered in a foreign country for an enterprise with its seat in a foreign country, who have a recognised passport or, in lieu, a passport certifying their status as engaged in navigation on the Rhine or holders of a special passport recognised in lieu, for example a ‘Donauschifferausweis’ or seaman's book (‘Seefahrtbuch’) and who are on the crew list. The stay must be directly related to the aims of the navigating profession.

Self-employed professions are also understood as paid activity. Some special activities are not regarded as paid activity (§ 17.2 of the ordinance on residence in conjunction with § 16 of the ordinance on employment; for example, special drivers). These persons may enter visa-free under the conditions specifically set out.

(30)  Comment by Bulgaria: In order to work in Bulgaria, aliens must hold a work permit and a long-term visa for first entry. After they have entered Bulgaria, the competent immigration authorities issue a residence permit entitling aliens to stay, leave and re-enter the territory of Bulgaria without any other visa authorisation.

(31)  Comment by Lithuania: In order to work in Lithuania, aliens must hold a work permit (with the exceptions indicated in Order No A1-179 of the Minister of Social Security and Labour of 16 July 2004) and a residence permit, which can be obtained on the territory of Lithuania.

(32)  Comment by Finland: A residence permit for an employed person is required in order to work.

(33)  Comment by Cyprus: In order to work in Cyprus, aliens must hold a work permit and a residence permit, in accordance with the Aliens & Immigration Law (Chapter 105) and the relevant Regulation No 242/72.

(34)  Comment by Malta: In order to work in Malta, aliens must hold a work permit/residence permit for employment.

(35)  Comment by Austria: In Austria, the following special provisions apply to issuing visas for gainful activities:

Visa-free seasonal and harvest workers may enter Austria without a ‘D + C’ visa and obtain a work permit after a clearance certificate has been issued by the competent aliens police authority.

For other, merely temporary, independent or dependent employment, aliens who are exempt from the visa requirement may take up their activities only after a residence travel visa (‘D + C’ visa) has been issued.

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V Announcements

ADMINISTRATIVE PROCEDURES

Commission

| 20.3.2008 | EN | Official Journal of the European Union | C 74/62 |
| --- | --- | --- | --- |

20.3.2008

EN

Official Journal of the European Union

C 74/62

---

Call for proposals for indirect actions under the multiannual Community Programme to make digital content in Europe more accessible, usable and exploitable (The eContentplus Programme)

(Text with EEA relevance)

(2008/C 74/13)

1.   Objectives and description

The European Commission has adopted a Work Programme and a call for proposals for the year 2008 to implement the eContentplus Programme (1).

The present call is open for proposals for indirect actions addressing the following areas and the following activities:

| — | Geographic information







  3.1. | Best practice networks for geographic information |
| --- | --- | --- |

—

Geographic information

3.1.

Best practice networks for geographic information

| — | Educational content







  4.1. | Best practice networks for educational content |
| --- | --- | --- |

—

Educational content

4.1.

Best practice networks for educational content

| 4.2. | Targeted projects for educational content |
| --- | --- |

4.2.

Targeted projects for educational content

| — | Digital libraries







  5.1. | Best practice networks for interoperability of digital libraries |
| --- | --- | --- |

—

Digital libraries

5.1.

Best practice networks for interoperability of digital libraries

| 5.2. | Best practice networks for the use and services of the of the European Digital Library |
| --- | --- |

5.2.

Best practice networks for the use and services of the of the European Digital Library

| 5.3. | Targeted projects for cultural content |
| --- | --- |

5.3.

Targeted projects for cultural content

| 5.4. | Targeted projects for scientific/scholarly content |
| --- | --- |

5.4.

Targeted projects for scientific/scholarly content

| 5.5. | A Thematic network for co-ordinating and supporting the European Digital Library. |
| --- | --- |

5.5.

A Thematic network for co-ordinating and supporting the European Digital Library.

2.   Eligible applicants

Participation in the eContentplus Programme is open to legal entities established in the EU Member States.

It is also open to legal entities established in EFTA States that are contracting parties to the EEA Agreement (Iceland, Liechtenstein, Norway), in accordance with the provisions of that Agreement (2).

Legal entities established in Croatia, Turkey and the Former Yugoslav Republic of Macedonia can take part in a proposal, but will only receive funding if a bilateral agreement with the relevant country has been concluded to this effect.

The participation of legal entities established in third countries and of international organisations is possible, though without financial support from the Community.

3.   Budget

The total budget earmarked for co-financing indirect actions is EUR 42,5 million.

4.   Deadline

The deadline for receipt of proposals by the Commission is 12 June 2008 at 17.00 (Luxembourg local time). Proposals not received by this deadline will not be considered.

5.   Further information

The full text of the call for proposals and the application forms are available on the following website:

http://ec.europa.eu/econtentplus

All applications must comply with the specifications and conditions described in the full text of the call for proposals, the Work Programme and the Guide for proposers which are available in English on the Commission's above-mentioned internet site. These include information on how to prepare and submit proposals.

The evaluation of proposals will be based on the principles of transparency and equality of treatment. It will be carried out by the Commission with the assistance of outside experts. Each submission will be assessed on the basis of the evaluation criteria set out in the eContentplus Work Programme.

All proposals received by the European Commission will be treated in strict confidence.

---

(1)  Decision No 456/2005/EC of European Parliament and of the Council of 9 March 2005 adopting a multiannual Community Programme to make digital content in Europe more accessible, usable and exploitable (OJ L 79, 24.3.2005, p. 1).

(2)  Up-to-date information on which countries are part of the programme is published in the Official Journal of the European Union. An up-to-date list is also available on the programme website at: http://ec.europa.eu/econtentplus

---

| 20.3.2008 | EN | Official Journal of the European Union | C 74/64 |
| --- | --- | --- | --- |

20.3.2008

EN

Official Journal of the European Union

C 74/64

---

Call for proposals under the work programmes of the 7th EC Framework Programme for Research, Technological Development and Demonstration Activities

(2008/C 74/14)

Notice is hereby given of the launch of calls for proposals under the work programmes of the 7th Framework Programme of the European Community for Research, Technological Development and Demonstration Activities (2007 to 2013).

Proposals are invited for the following calls. Call deadlines and budgets are given in the call texts, which are published on the CORDIS website.

People Specific Programme:

| Call Identifiers: | FP7-PEOPLE-IEF-2008 | ‘Intra-European Fellowships’ |
| --- | --- | --- |
| FP7-PEOPLE-IOF-2008 | ‘International Outgoing Fellowships’ |
| FP7-PEOPLE-IIF-2008 | ‘International Incoming Fellowships’ |

Call Identifiers:

FP7-PEOPLE-IEF-2008

‘Intra-European Fellowships’

FP7-PEOPLE-IOF-2008

‘International Outgoing Fellowships’

FP7-PEOPLE-IIF-2008

‘International Incoming Fellowships’

These calls for proposals relate to the work programme adopted by Commission Decision C(2007) 5740 of 28 November 2007.

Information on the modalities of the calls, the work programmes, and the guidance for applicants on how to submit proposals is available through the CORDIS website: http://cordis.europa.eu/fp7/calls/

---

COURT PROCEEDINGS

European Economic Area EFTA Court

| 20.3.2008 | EN | Official Journal of the European Union | C 74/65 |
| --- | --- | --- | --- |

20.3.2008

EN

Official Journal of the European Union

C 74/65

---

Request for an Advisory Opinion from the EFTA Court by Oslo tingrett dated 26 November 2007 in the Case of L'Oréal Norge AS v Smart Club Norge AS

(Case E-10/07)

(2008/C 74/15)

A request has been made to the EFTA Court by a letter of 26 November 2007 from Oslo tingrett (Oslo District Court), which was received at the Court Registry on 29 November 2007, for an Advisory Opinion in the Case of L'Oréal Norge AS v Smart Club Norge AS, on the following questions:

| 1. | Is Article 7(1) of Council Directive 89/104/EEC to be understood to the effect that a trade mark proprietor has the right to prevent imports from third countries outside the EEA when such imports take place without the consent of the trade mark proprietor? |
| --- | --- |

1.

Is Article 7(1) of Council Directive 89/104/EEC to be understood to the effect that a trade mark proprietor has the right to prevent imports from third countries outside the EEA when such imports take place without the consent of the trade mark proprietor?

| 2. | Is Article 7(1) of Directive 89/104/EEC to be understood to the effect that international exhaustion is permitted? |
| --- | --- |

2.

Is Article 7(1) of Directive 89/104/EEC to be understood to the effect that international exhaustion is permitted?

---

PROCEDURES RELATING TO THE IMPLEMENTATION OF THE COMMON COMMERCIAL POLICY

Commission

| 20.3.2008 | EN | Official Journal of the European Union | C 74/66 |
| --- | --- | --- | --- |

20.3.2008

EN

Official Journal of the European Union

C 74/66

---

Notice of initiation of a partial interim review of the anti-dumping measures applicable to imports of certain castings originating in the People's Republic of China

(2008/C 74/16)

The Commission has received a request for a partial interim review pursuant to Article 11(3) of Council Regulation (EC) No 384/96 of 22 December 1995 on protection against dumped imports from countries not members of the European Community (1) (‘the basic Regulation’). The review is limited to the examination of the product scope as regards the clarification of whether certain product types fall within the scope of the measures on certain castings.

The request was lodged by Eurofonte (‘the applicant’).

1.   Product

The product under review is castings of non-malleable cast iron of a kind used to cover and/or to give access to ground or sub-surface systems, and parts thereof, whether or not machined, coated or painted or fitted with other materials, excluding fire hydrants, originating in the People's Republic of China (‘the product concerned’), currently classifiable within CN codes 7325 10 50, 7325 10 92 and ex 7325 10 99. These CN codes are given only for information.

2.   Existing measures

The measures currently in force are a definitive anti-dumping duty imposed by Council Regulation (EC) No 1212/2005 (2) on imports of certain castings originating in the People's Republic of China as amended by Regulation (EC) No 268/2006 (3). An undertaking was accepted by Commission Decision 2006/109/EC (4).

3.   Grounds for the review

The product subject to measures specified in Article 1 of Regulation (EC) No 1212/2005 refers to castings of non-malleable cast iron. In the descriptive part of the same Regulation (recitals 18-23) reference is made to castings of grey and ductile iron. The applicant alleges that there is a lack of clarity as to the scope of the measure as set in the abovementioned Regulation. In these circumstances, the applicant alleges that the product scope should be clarified as far as castings of ductile iron are concerned and in particular whether these kind of castings fall within the definition of the product concerned.

Therefore it is appropriate to review the case as far as the scope of the product is concerned. Any Regulation which may result from this review might possibly have a retroactive effect as of the date of imposition of the relevant measures, or possibly from a later date, for instance the date after publication of this Notice. All operators, and in particular importers are invited to make their views known on this issue, and submit any evidence supporting those views.

4.   Procedure

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, limited to the examination of the product scope.

(a)   Questionnaires

In order to obtain the information it deems necessary for its investigation, the Commission will send questionnaires to the Community industry, to other known producers in the Community, to known importers, to known users, to known exporting producers in the People's Republic of China and to the authorities of that country. This information and supporting evidence should reach the Commission within the time limit set in point 5(a).

(b)   Collection of information and holding of hearings

All interested parties are hereby invited to make their views known, submit information, including 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 5(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 5(b).

5.   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.

6.   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, and/or telex 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’ (5) 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 H |
| Office: J-79 4/23 |
| B-1049 Brussels |
| Fax (32-2) 295 65 05. |

European Commission

Directorate General for Trade

Directorate H

Office: J-79 4/23

B-1049 Brussels

Fax (32-2) 295 65 05.

7.   Non-cooperation

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, provisional or final 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 of the facts available. If an interested party does not cooperate or cooperates only partially and findings are therefore based on facts available in accordance with Article 18 of the basic Regulation, the result may be less favourable to that party than if it had cooperated.

8.   Schedule of the investigation

The investigation will be concluded, according to Article 11(5) of the basic Regulation, within 15 months of the date of the publication of this notice in the Official Journal of the European Union.

9.   Other interim reviews under Article 11(3) of the basic Regulation

The scope of the current review is as set out in point 4 above. Any party wishing to claim a review on the basis of other grounds may do so in accordance with the provisions of Article 11(3) of the basic Regulation.

10.   Processing of personal data

It is noted that any personal data collected in this investigation will be treated in accordance with Regulation (EC) No 45/2001 of the European Parliament and of the Council of 18 December 2000 on the protection of individuals with regard to the processing of personal data by the Community institutions and bodies and on the free movement of such data (6).

11.   Hearing Officer

It is also noted that if interested parties consider that they are encountering difficulties in the exercise of their rights of defence, they may request the intervention of the Hearing Officer of DG Trade. He acts as an interface between the interested parties and the Commission services, offering, where necessary, mediation on procedural matters affecting the protection of their interests in this proceeding, in particular with regard to issues concerning access to the file, confidentiality, extension of time limits and the treatment of written and/or oral submission of views. For further information and contact details, interested parties may consult the Hearing Officer's web pages on the website of DG Trade (http://ec.europa.eu/trade).

---

(1)  OJ L 56, 6.3.1996, p. 1. Regulation as last amended by Regulation (EC) No 2117/2005 (OJ L 340, 23.12.2005, p. 17).

(2)  OJ L 199, 29.7.2005, p. 1.

(3)  OJ L 47, 17.2.2006, p. 3.

(4)  OJ L 47, 17.2.2006, p. 59.

(5)  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 (OJ L 145, 31.5.2001, p. 43). It is a confidential document pursuant to Article 19 of Regulation (EC) No 384/96 and Article 6 of the WTO Agreement on Implementation of Article VI of the GATT 1994 (Anti-dumping Agreement).

(6)  OJ L 8, 12.1.2001, p. 1.

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PROCEDURES RELATING TO THE IMPLEMENTATION OF THE COMPETITION POLICY

Commission

| 20.3.2008 | EN | Official Journal of the European Union | C 74/68 |
| --- | --- | --- | --- |

20.3.2008

EN

Official Journal of the European Union

C 74/68

---

Prior notification of a concentration

(Case COMP/M.5032 — Roxel/Protac)

(Text with EEA relevance)

(2008/C 74/17)

| 1. | On 12 March 2008, the Commission received a notification of a proposed concentration pursuant to Article 4 of Council Regulation (EC) No 139/2004 (1) by which the undertakings MBDA SAS (‘MBDA’, France) and SNPE Matériaux Énergétiques SA (‘SME’, France), a subsidiary of the French State-owned SNPE group, acting through their existing joint venture, Roxel SAS (‘Roxel’, France) acquire within the meaning of Article 3(1)(b) of the Council Regulation joint control of the undertaking Protac (France) by way of purchase of shares. |
| --- | --- |

1.

On 12 March 2008, the Commission received a notification of a proposed concentration pursuant to Article 4 of Council Regulation (EC) No 139/2004 (1) by which the undertakings MBDA SAS (‘MBDA’, France) and SNPE Matériaux Énergétiques SA (‘SME’, France), a subsidiary of the French State-owned SNPE group, acting through their existing joint venture, Roxel SAS (‘Roxel’, France) acquire within the meaning of Article 3(1)(b) of the Council Regulation joint control of the undertaking Protac (France) by way of purchase of shares.

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






  — | for MBDA: manufacture and sale of guided weapons and guided weapons systems, |
| --- | --- | --- |

2.

The business activities of the undertakings concerned are:

—

for MBDA: manufacture and sale of guided weapons and guided weapons systems,

| — | for SME: manufacture of propellant charges and energetic equipment, primarily for the aerospace, defence and automotive industries, and propellants and explosives for military applications, |
| --- | --- |

—

for SME: manufacture of propellant charges and energetic equipment, primarily for the aerospace, defence and automotive industries, and propellants and explosives for military applications,

| — | for Protac: design, manufacture and sale of propulsion systems for tactical guided weapons. |
| --- | --- |

—

for Protac: design, manufacture and sale of propulsion systems for tactical guided weapons.

| 3. | On preliminary examination, the Commission finds that the notified transaction could fall within the scope of Regulation (EC) No 139/2004. However, the final decision on this point is reserved. |
| --- | --- |

3.

On preliminary examination, the Commission finds that the notified transaction could fall within the scope of Regulation (EC) No 139/2004. However, the final decision on this point is reserved.

| 4. | The Commission invites interested third parties to submit their possible observations on the proposed operation to the Commission.
  Observations must reach the Commission not later than 10 days following the date of this publication. Observations can be sent to the Commission by fax ((32-2) 296 43 01 or 296 72 44) or by post, under reference number COMP/M.5032 — Roxel/Protac, to the following address:





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

4.

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

Observations must reach the Commission not later than 10 days following the date of this publication. Observations can be sent to the Commission by fax ((32-2) 296 43 01 or 296 72 44) or by post, under reference number COMP/M.5032 — Roxel/Protac, to the following address:

European Commission

Directorate-General for Competition

Merger Registry

J-70

B-1049 Bruxelles/Brussel

---

(1)  OJ L 24, 29.1.2004, p. 1.

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| 20.3.2008 | EN | Official Journal of the European Union | C 74/69 |
| --- | --- | --- | --- |

20.3.2008

EN

Official Journal of the European Union

C 74/69

---

Prior notification of a concentration

(Case COMP/M.4919 — StatoilHydro/ConocoPhillips (Jet))

(Text with EEA relevance)

(2008/C 74/18)

| 1. | On 14 March 2008, the Commission received a notification of a proposed concentration pursuant to Article 4 of Council Regulation (EC) No 139/2004 (1) by which the undertaking StatoilHydro ASA (‘StatoilHydro’, Norway) acquire(s) within the meaning of Article 3(1)(b) of the Council Regulation control of the whole of three undertakings (‘Jet Scandinavia’) consisting of ConocoPhillips Danmark ApS (Denmark), ConocoPhillips Nordic AB (Sweden) and ConocoPhillips JET AS (Norway) by way of purchase of shares. |
| --- | --- |

1.

On 14 March 2008, the Commission received a notification of a proposed concentration pursuant to Article 4 of Council Regulation (EC) No 139/2004 (1) by which the undertaking StatoilHydro ASA (‘StatoilHydro’, Norway) acquire(s) within the meaning of Article 3(1)(b) of the Council Regulation control of the whole of three undertakings (‘Jet Scandinavia’) consisting of ConocoPhillips Danmark ApS (Denmark), ConocoPhillips Nordic AB (Sweden) and ConocoPhillips JET AS (Norway) by way of purchase of shares.

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






  — | for StatoilHydro: integrated oil and gas company, active in upstream exploration, development, production and sales of oil and gas, as well as downstream operating of motor fuels retail stations, notably in Denmark, Norway and Sweden, |
| --- | --- | --- |

2.

The business activities of the undertakings concerned are:

—

for StatoilHydro: integrated oil and gas company, active in upstream exploration, development, production and sales of oil and gas, as well as downstream operating of motor fuels retail stations, notably in Denmark, Norway and Sweden,

| — | for Jet Scandinavia: operating, under the ‘Jet’ brand, of motor fuels retail stations in Denmark, Norway and Sweden and storage terminals in Sweden. |
| --- | --- |

—

for Jet Scandinavia: operating, under the ‘Jet’ brand, of motor fuels retail stations in Denmark, Norway and Sweden and storage terminals in Sweden.

| 3. | On preliminary examination, the Commission finds that the notified transaction could fall within the scope of Regulation (EC) No 139/2004. However, the final decision on this point is reserved. |
| --- | --- |

3.

On preliminary examination, the Commission finds that the notified transaction could fall within the scope of Regulation (EC) No 139/2004. However, the final decision on this point is reserved.

| 4. | The Commission invites interested third parties to submit their possible observations on the proposed operation to the Commission.
  Observations must reach the Commission not later than 10 days following the date of this publication. Observations can be sent to the Commission by fax ((32-2) 296 43 01 or 296 72 44) or by post, under reference number COMP/M.4919 — StatoilHydro/ConocoPhillips (Jet), to the following address:





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

4.

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

Observations must reach the Commission not later than 10 days following the date of this publication. Observations can be sent to the Commission by fax ((32-2) 296 43 01 or 296 72 44) or by post, under reference number COMP/M.4919 — StatoilHydro/ConocoPhillips (Jet), to the following address:

European Commission

Directorate-General for Competition

Merger Registry

J-70

B-1049 Bruxelles/Brussel

---

(1)  OJ L 24, 29.1.2004, p. 1.

---

| 20.3.2008 | EN | Official Journal of the European Union | C 74/70 |
| --- | --- | --- | --- |

20.3.2008

EN

Official Journal of the European Union

C 74/70

---

Prior notification of a concentration

(Case COMP/M.5104 — Altor Fund II/Papyrus)

Candidate case for simplified procedure

(Text with EEA relevance)

(2008/C 74/19)

| 1. | On 14 March 2008, the Commission received a notification of a proposed concentration pursuant to Article 4 of Council Regulation (EC) No 139/2004 (1) by which Altor Fund II (‘Altor’, Sweden) acquires within the meaning of Article 3(1)(b) of the Council Regulation control of the whole of Papyrus AB and related companies (together ‘Papyrus’, Sweden) by way of purchase of shares. |
| --- | --- |

1.

On 14 March 2008, the Commission received a notification of a proposed concentration pursuant to Article 4 of Council Regulation (EC) No 139/2004 (1) by which Altor Fund II (‘Altor’, Sweden) acquires within the meaning of Article 3(1)(b) of the Council Regulation control of the whole of Papyrus AB and related companies (together ‘Papyrus’, Sweden) by way of purchase of shares.

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






  — | for Altor: private equity, |
| --- | --- | --- |

2.

The business activities of the undertakings concerned are:

—

for Altor: private equity,

| — | for Papyrus: distribution of fine paper, packaging material, consumables and office supplies. |
| --- | --- |

—

for Papyrus: distribution of fine paper, packaging material, consumables and office supplies.

| 3. | On preliminary examination, the Commission finds that the notified transaction could fall within the scope of Regulation (EC) No 139/2004. However, the final decision on this point is reserved. Pursuant to the Commission Notice on a simplified procedure for treatment of certain concentrations under Council Regulation (EC) No 139/2004 (2) it should be noted that this case is a candidate for treatment under the procedure set out in the Notice. |
| --- | --- |

3.

On preliminary examination, the Commission finds that the notified transaction could fall within the scope of Regulation (EC) No 139/2004. However, the final decision on this point is reserved. Pursuant to the Commission Notice on a simplified procedure for treatment of certain concentrations under Council Regulation (EC) No 139/2004 (2) it should be noted that this case is a candidate for treatment under the procedure set out in the Notice.

| 4. | The Commission invites interested third parties to submit their possible observations on the proposed operation to the Commission.
  Observations must reach the Commission not later than 10 days following the date of this publication. Observations can be sent to the Commission by fax ((32-2) 296 43 01 or 296 72 44) or by post, under reference number COMP/M.5104 — Altor Fund II/Papyrus AG, to the following address:





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

4.

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

Observations must reach the Commission not later than 10 days following the date of this publication. Observations can be sent to the Commission by fax ((32-2) 296 43 01 or 296 72 44) or by post, under reference number COMP/M.5104 — Altor Fund II/Papyrus AG, to the following address:

European Commission

Directorate-General for Competition

Merger Registry

J-70

B-1049 Bruxelles/Brussel

---

(1)  OJ L 24, 29.1.2004, p. 1.

(2)  OJ C 56, 5.3.2005, p. 32.

---

| 20.3.2008 | EN | Official Journal of the European Union | C 74/71 |
| --- | --- | --- | --- |

20.3.2008

EN

Official Journal of the European Union

C 74/71

---

Prior notification of a concentration

(Case COMP/M.5077 — Colony Capital/Morgan Stanley/Colfilm)

Candidate case for simplified procedure

(Text with EEA relevance)

(2008/C 74/20)

| 1. | On 14 March 2008, the Commission received a notification of a proposed concentration pursuant to Article 4 of Council Regulation (EC) No 139/2004 (1) by which the undertakings Colony Investors VII, L.P., and Colyzeo Investors, L.P. (both UK-based) controlled by the Colony Capital group (‘Colony Capital’, USA), and Morgan Stanley & Co. International plc, belonging to the Morgan Stanley group (‘Morgan Stanley’, USA) acquire within the meaning of Article 3(1)(b) of the Council Regulation joint control of the undertaking Colfilm SAS (‘Colfilm’, France) by way of purchase of shares. |
| --- | --- |

1.

On 14 March 2008, the Commission received a notification of a proposed concentration pursuant to Article 4 of Council Regulation (EC) No 139/2004 (1) by which the undertakings Colony Investors VII, L.P., and Colyzeo Investors, L.P. (both UK-based) controlled by the Colony Capital group (‘Colony Capital’, USA), and Morgan Stanley & Co. International plc, belonging to the Morgan Stanley group (‘Morgan Stanley’, USA) acquire within the meaning of Article 3(1)(b) of the Council Regulation joint control of the undertaking Colfilm SAS (‘Colfilm’, France) by way of purchase of shares.

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






  — | for Colony Capital: private equity firm, |
| --- | --- | --- |

2.

The business activities of the undertakings concerned are:

—

for Colony Capital: private equity firm,

| — | for Morgan Stanley: global financial services, |
| --- | --- |

—

for Morgan Stanley: global financial services,

| — | for Colfilm: holding company of Paris Saint-Germain Football SA and related (sports) activities. |
| --- | --- |

—

for Colfilm: holding company of Paris Saint-Germain Football SA and related (sports) activities.

| 3. | On preliminary examination, the Commission finds that the notified transaction could fall within the scope of Regulation (EC) No 139/2004. However, the final decision on this point is reserved. Pursuant to the Commission Notice on a simplified procedure for treatment of certain concentrations under Council Regulation (EC) No 139/2004 (2) it should be noted that this case is a candidate for treatment under the procedure set out in the Notice. |
| --- | --- |

3.

On preliminary examination, the Commission finds that the notified transaction could fall within the scope of Regulation (EC) No 139/2004. However, the final decision on this point is reserved. Pursuant to the Commission Notice on a simplified procedure for treatment of certain concentrations under Council Regulation (EC) No 139/2004 (2) it should be noted that this case is a candidate for treatment under the procedure set out in the Notice.

| 4. | The Commission invites interested third parties to submit their possible observations on the proposed operation to the Commission.
  Observations must reach the Commission not later than 10 days following the date of this publication. Observations can be sent to the Commission by fax ((32-2) 296 43 01 or 296 72 44) or by post, under reference number COMP/M.5077 — Colony Capital/Morgan Stanley/Colfilm, to the following address:





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

4.

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

Observations must reach the Commission not later than 10 days following the date of this publication. Observations can be sent to the Commission by fax ((32-2) 296 43 01 or 296 72 44) or by post, under reference number COMP/M.5077 — Colony Capital/Morgan Stanley/Colfilm, to the following address:

European Commission

Directorate-General for Competition

Merger Registry

J-70

B-1049 Bruxelles/Brussel

---

(1)  OJ L 24, 29.1.2004, p. 1.

(2)  OJ C 56, 5.3.2005, p. 32.

---

OTHER ACTS

Commission

| 20.3.2008 | EN | Official Journal of the European Union | C 74/72 |
| --- | --- | --- | --- |

20.3.2008

EN

Official Journal of the European Union

C 74/72

---

Publication of an application pursuant to Article 6(2) of Council Regulation (EC) No 510/2006 on the protection of geographical indications and designations of origin for agricultural products and foodstuffs

(2008/C 74/21)

This publication confers the right to object to the application pursuant to Article 7 of Council Regulation (EC) No 510/2006 (1). Statements of objection must reach the Commission within six months from the date of this publication.

SUMMARY

COUNCIL REGULATION (EC) No 510/2006

‘KAINUUN RÖNTTÖNEN’

EC No: FI/PGI/005/0099/23.06.1999

PDO ( ) PGI ( X )

This summary sets out the main elements of the product specification for information purposes.

1.   Responsible department in the Member State:

| Name: | Maa- ja metsätalousministeriö |
| --- | --- |
| Address: | PL 30, FI-00023 Valtioneuvosto |
| Tel. | (358-9) 1605 42 78 |
| Fax | (358-9) 1605 34 00 |
| E-mail: | maija.heinonen@mmm.fi |

Name:

Maa- ja metsätalousministeriö

Address:

PL 30, FI-00023 Valtioneuvosto

Tel.

(358-9) 1605 42 78

Fax

(358-9) 1605 34 00

E-mail:

maija.heinonen@mmm.fi

2.   Group:

| Name: | Kainuun Leipomoliikkeen harjoittajat ry |
| --- | --- |
| Address: | Kainuuntie 126 |
| FI-88900 Kuhmo |

Name:

Kainuun Leipomoliikkeen harjoittajat ry

Address:

Kainuuntie 126

FI-88900 Kuhmo

Tel.

(358-020) 833 53 35

Fax

(358-8) 655 12 74

E-mail:

kaesa@kaesankotileipomo.fi

Composition:

Producers/processors ( X ) Other ( )

3.   Type of product:

Class 2.4: Bread, pastry, cakes, confectionery and other baker's wares

4.   Specification:

(Summary of requirements under Article 4(2) of Regulation (EC) No 510/2006)

4.1.   Name: ‘Kainuun rönttönen’

4.2.   Description: The Kainuun rönttönen is a small, round, rye-crust, open pie filled with cooked mashed potatoes, rye flour and lingonberries. The filling is a sweet-tasting, reddish-brown mixture of mashed potatoes and lingonberries, glazed with melted butter. The Kainuun rönttönen is made in three stages: first you make the filling, then you prepare the crust, and finally the two are combined.

4.3.   Geographical area: The Kainuu Region, which is located in the Province of Oulu, consists of 8 municipalities and two cities. Kainuu has a population of 86 000 and a population density of 4 persons per square kilometre. The total surface area of Kainuu is 24 451 km2; of which 12 % is covered by water. There are more than 2 million hectares of forest, and the landscape is generally characterised by hills, forests, bodies of water and marshland.

4.4.   Proof of origin: The products are made in accordance with current legislation, and the HACCP quality control system is used in the manufacturing process. Compliance with the product specification is monitored by the Finnish Food Safety Authority.

Product traceability is ensured by mentioning the name of the producer on the package, or on the product label which must be affixed to the package. Production must take place in the geographical area which has been defined for the production of Kainuun rönttönen.

4.5.   Method of production: The Kainuun rönttönen pie is made in three stages: first you make the filling, then you prepare the crust, and finally the two are combined. Kainuun rönttönen are one hundred per cent handmade, starting with the measuring of the ingredients. Machines are used only to help knead and roll the dough and peel the potatoes.

Ingredients:

Crust:

| — | 0,500 kg cold water, |
| --- | --- |

—

0,500 kg cold water,

| — | 0,007 kg salt, |
| --- | --- |

—

0,007 kg salt,

| — | 0,300 kg wheat flour, |
| --- | --- |

—

0,300 kg wheat flour,

| — | 0,800 kg rye flour, |
| --- | --- |

—

0,800 kg rye flour,

| — | 0,050 kg rapeseed oil. |
| --- | --- |

—

0,050 kg rapeseed oil.

Filling:

| — | 2,000 kg potatoes, |
| --- | --- |

—

2,000 kg potatoes,

| — | 0,300 kg rye flour, |
| --- | --- |

—

0,300 kg rye flour,

| — | 0,400 kg mashed lingonberries, |
| --- | --- |

—

0,400 kg mashed lingonberries,

| — | 0,100 kg sugar, |
| --- | --- |

—

0,100 kg sugar,

| — | 0,007 kg salt. |
| --- | --- |

—

0,007 kg salt.

Preparing the filling:

Peel the potatoes and boil them in water until soft. Strain and mash the potatoes.

Let the mashed potatoes cool a little, then add the rye flour and mix.

Leave the mixture at room temperature for 2 or 3 hours to allow it to sweeten. Stir the mixture every now and then.

Once the mixture has cooled and sweetened, mix in the sugared mashed lingonberries and the salt.

Preparing the crust:

Dissolve the salt in the cold water. Gradually stir in the rye flour, then the wheat flour and some sourdough starter. Knead into a dough. Finally, mix in the rapeseed oil.

Roll out the dough to a thickness of 2 mm. Cut out circles of dough (diameter 50-130 mm) with a cutter. Fill the crusts with a thick layer of the filling, spreading the filling to within 1 cm of the edge. The correct ratio between the filling and crust is 1:1.

Folding, crimping and baking the Kainuun rönttönen pies:

Fold the edges of the crust up over the filling, leaving the centre of the pie uncovered, and crimp the edges by pinching them evenly into smooth, rounded ridges. Place the pies on a baking tray.

Bake the pies in a hot oven until they are crisp and their edges are golden brown. Remove them from the oven and brush their edges with melted butter.

Storing the Kainuun rönttönen pies:

Crispy Kainuun rönttönen pies are most delicious when served slightly cooled.

They can be stored at room temperature for a day or two, covered with a cloth or in a paper bag. They can be kept in the refrigerator for a week. Simply reheat before serving.

Pies can be frozen either before or after baking to increase their shelf life. Pies that are frozen raw can be baked in the required amounts when needed.

4.6.   Link: Bread and pastries feature prominently in the cuisine of Kainuu. In their book Kainuun leipä (Bread in Kainuu), Götha and Reima Rannikko wrote: ‘While the same basic types of bread are baked throughout Kainuu, dozens of local specialities are found in different parts of the region. As a result of our five years of work, we have managed to identify approximately one hundred different types of basic breads and pastries in Kainuu. This number increases if all of the variations and nuances are taken into account. The diversity of the bread and pastry culture is at least partly due to Kainuu's geographical location at the crossroads of cultural influences from Northern Ostrobothnia, Savo and Russian Karelia’.

The story goes that, in bygone days, when food was scarce at the end of the winter and the men had to go logging, the women would scrape the last lingonberries from the bottom of the barrel, grab the last of the potatoes from the potato bin and bake the mixture on a rye crust. The result was a rönttönen, a large, rich pie. Nowadays they also make smaller, cocktail-size rönttönen.

Human beings can distinguish four primary tastes: salty, sweet, sour and bitter. In the olden days, when sugar was scarce or unobtainable, Kainuun rönttönen satisfied people's craving for something sweet, the sweetness coming from allowing the potatoes to sweeten. The leavening process produces the light crust and succulent taste. Oven-baked rönttönen are unique, crisp pastries.

The rönttönen pie is recognised as a product solely and specifically originating from Kainuu. It is a local speciality of Kuhmo. In textbooks and cookery books rönttönen pies are automatically associated with Kainuu. For example, the recipe for rönttönen published in a book called Baker's à la carte (by Manne Stenros) was provided by one of the Kainuu-based producers who is involved in this application.

Several kinds of pies are produced in the Kainuu area, but only the particular open pie baked according to this recipe is called rönttönen. The connection to the Kainuu region is documented, for example, in the recipe book: ‘Suomalaisia leipäerikoisuuksia’ (‘Finnish bread specialities’) (Leipätoimikunta 1988). The common history of the region and the product is best described in Götha and Reima Rannikko's book ‘Kainuun leipä’ (‘Kainuu's bread’) (Otava 1978). Kainuun rönttönen is cited as an example of baking in the Kainuu area in a book by the chef Jaakko Kolmonen: ‘Suomen maakuntaleivät’ (‘Breads of Finland's Regions’), which contains recipes for almost 80 different types of Finnish bread. Literary works depicting life in the Kainuu area, such as Veikko Huovinen's ‘Muina miehinä’, specifically describe Kainuun rönttönen as a local product. Kainuun rönttönen pies are an essential part of Kainuu's cultural events, such as the annual traditional Kuhmo Chamber Music Festival, which brings together people from around the world and gives them the opportunity to try the local specialities. Kainuun rönttönen were presented at the Festival of Finnish Food Culture in Helsinki in 1998, the Helsinki Rural Markets in 1994 and the Stuttgart Confectionery and Bakery Fair in 1996. It has also featured prominently in Kainuu's display at the annual Tourism Fair in Helsinki.

Kainuun rönttönen used to be served with soup, and this tradition lives on. It makes a delicious, nutritious snack for both children and adults, and requires only the addition of a little butter, to taste. It goes well with coffee and is ideal to take on trips.

4.7.   Inspection body:

| Name: | Elintarviketurvallisuusvirasto Evira |
| --- | --- |
| Address: | PL 28, FI-00581 Helsinki |
| Tel. | (358-020) 772 003 |
| Fax | (358-020) 772 43 50 |
| E-mail: | kirjaamo@evira.fi |

Name:

Elintarviketurvallisuusvirasto Evira

Address:

PL 28, FI-00581 Helsinki

Tel.

(358-020) 772 003

Fax

(358-020) 772 43 50

E-mail:

kirjaamo@evira.fi

4.8.   Labelling: —

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(1)  OJ L 93, 31.3.2006, p. 12.

---