Council Opinion

of 28 February 2000

on the updated stability programme of Spain for the period 1999 to 2003

(2000/C 98/04)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community,

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

Having regard to the recommendation of the Commission,

After consulting the Economic and Financial Committee,

HAS DELIVERED THIS OPINION:

On 28 February 2000 the Council examined Spain's updated stability programme which covers the 1999 to 2003 period. The Council notes with satisfaction that the programme reaffirms the strategy adopted in the 1998 Stability Programme: promoting healthy economic growth through fiscal consolidation and structural reforms. The programme's objectives are to turn the estimated 1999 general government deficit of 1,3 % of GDP into a surplus of 0,2 % of GDP in 2003, while the gross debt ratio will decrease to 55,8 % of GDP. Moreover, the programme builds on the continuation of the budgetary consolidation based on expenditure containment.

The Council welcomes the record of implementation of the 1998 Stability Programme, where GDP has grown briskly along with strong job creation. As regards public finances, general government balance and debt targets seem to have been exceeded. However, price developments since the second half of 1999 have been worse than expected.

The macroeconomic scenario in the updated programme assumes output growth to decelerate from its present high rate (3,7 % in 1999) towards close to trend over the period 2000 to 2003 (3,3 % on average). The Council notes that this macroeconomic scenario appears realistic. Following its opinion on the initial stability programme(2) the Council considers that a continuation of the strategy adopted, based on structural reforms along with the stable monetary framework under EMU and sound budgetary consolidation, should allow the Spanish economy to develop in line with the medium-term macroeconomic scenario.

The Council notes with satisfaction that the update continues with the budgetary strategy, which relies on the restraint of primary current expenditure, and allows for a reinforcement of government investment and for a reduction in tax burden. As the reduction of the government deficit is based on the expenditure side, the implementation of the still-pending reform of the National Budget Law to reinforce the control of public spending would be welcome.

The underlying budgetary position corresponding to the targeted surplus of 0,1 % of GDP in 2002 would provide sufficient safety margin to prevent the deficit from breaching the 3 % of GDP threshold during a normal cyclical downturn and would also allow for an additional margin in case of unforeseen developments; the safety margin will increase further in 2003. The Council therefore considers that the medium-term budgetary target of the updated Stability Programme is in conformity with the provisions of the Stability and Growth Pact. The Council considers the envisaged widening of the safety margin is justified in order to cope with the budgetary consequences of ageing. In this respect, the Council welcomes the commitment made to further increase the Social Security reserve fund created in 2000.

The Council notes with satisfaction that the budgetary adjustment is to be shared by all sub-sectors of government, in particular the fact that the territorial governments, in the framework of the existing internal stability pact, are targeted to be in balance from 2001 on. The Council stresses that the increasing role of territorial governments in various categories of expenditure requires the continued functioning of the present inter-governmental coordination mechanisms.

In the light of recent developments on prices, the Council considers essential that wage developments in Spain must continue to be geared towards price stability. Additionally, the Council considers that fiscal policy should be ready to tighten further to counteract any possible overheating risk.

The Council considers that the programme is consistent with the Broad Economic Policy Guidelines. The Council notes with approval that the update acknowledges the increasing role of structural policies and fiscal consolidation in the EMU. Structural reforms have indeed played an important role in increasing the potential output of the Spanish economy, keeping a positive growth differential with respect to the EU area along with a strong job creation. The Council, therefore, encourages the Spanish Government to continue implementing the pending structural reforms.

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

(2) OJ C 124, 5.5.1999, p. 1.