COUNCIL OPINION of 8 February 1999 on the convergence programme of Sweden, 1998-2001 (1999/C 68/03)

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 9(1) and (2) thereof,

Having regard to the recommendation of the Commission,

After consulting the Economic and Financial Committee,

HAS DELIVERED THIS OPINION:

On 8 February 1999 the Council examined Sweden's Convergence programme which covers the period 1998 to 2001. The programme envisages continued government surpluses throughout the period to 2001 as the authorities make further progress towards their medium term objective of a budget surplus of 2 % of GDP over the cycle. The Council considers this target to be appropriate, especially in view of the projected ageing of the population and also welcomes the emphasis in the programme on securing macroeconomic stability. At the same time the Council considers that the programme is in line with the Broad Economic Policy Guidelines of the Member States agreed at the Cardiff Council.

In the macroeconomic framework of the programme GDP growth is projected at 2,4 % per annum. The Council considers that although the growth profile in the convergence programme implies some increase in the potential growth rate of the Swedish economy, this nevertheless seems realistic and attainable in light of the record of economic performance of recent years.

Sweden comfortably fulfils the inflation convergence criterion at present. The outlook for inflation remains good and expectations for inflation have for several years been consistent with price stability. Given Sweden's historical wage-setting pattern, the Council recommends vigilance with regard to wage developments. The Council also encourages Sweden to continue to pursue its inflation target in such a way as to ensure consistency with the ECB's objective of price stability.

Sweden has also fulfilled the long-term interest rate convergence criterion for some time. This reflects the improving stability of the Swedish economy and the recognition of the stability-oriented macroeconomic policy as well as recent success in budgetary consolidation. However, the enhanced credibility of the economic policy background has not yet fully translated into exchange rate stability. Moreover, the Council notes that qualification for EMU will require that Sweden demonstrate its ability to stay in line with an appropriate parity between the krona and the euro over a sufficient period of time without severe tensions. To this end, the Council expects Sweden to decide to join the ERM2 in due course.

The Council welcomes the convergence programme's aim of continuing the recent record of budgetary consolidation through the achievement of growing government surpluses. The budgetary targets of the programme provide a safety margin for the general government budget not to breach the 3 % of GDP reference value in normal circumstances. Therefore, the Council considers that Sweden is in compliance with the requirements of the Stability and Growth Pact. The Council welcomes the measures taken to improve the control of government expenditure, as recommended in the Broad Economic Policy Guidelines. The Council also welcomes the recent decline in the government debt ratio and notes that the government gross debt ratio in expected to fall below 60 % of GDP in 2001.

The Council considers that the programme's objective of increasing the employment ratio is welcome, especially as this should help broaden the tax base and thereby increase the scope for reductions in the tax burden. In addition, the Council welcomes the objective of increasing the employment ratio and urges the authorities to focus on private sector employment creation in pursuing this target. The Council notes that the recent efforts in structural reform have not been mentioned at length in the programme; also, the programme does not provide details of future directions in structural reform and little detail is given with regard to government investment priorities and strategy. The Council recommends that Sweden continue to build on the structural reforms of recent years and particularly welcomes the proposed reform of the pensions system which, in light of the projected ageing of the population, is of importance to the long-term stability of the public finances.

(1) OJ L 209, 2.8.1997, p. 1.