COUNCIL OPINION

of 15 March 1999

on the stability programme of Spain, 1998 to 2002

(1999/C 124/01)

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 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(1) and (2) thereof,

Having regard to the recommendation of the Commission,

After consulting the Economic and Financial Committee,

HAS DELIVERED THIS OPINION:

On 15 March 1999 the Council examined the stability programme for Spain which covers the 1998 to 2002 period. The Council notes that the programme reaffirms the two-handed strategy adopted in the April 1997 Convergence Programme: promoting non-inflationary employment-oriented growth through budgetary consolidation and structural reform. The Council welcomes the programme's objective of turning the general government deficit into a surplus of 0,1 % of GDP in 2002, while the gross debt ratio is expected to decrease to 59,3 % of GDP. Moreover, the Council notes with satisfaction that the programme builds on the continuation of the budgetary consolidation based on expenditure containment.

The programme is built upon a macroeconomic scenario which assumes output growth to decelerate from its present high rate (3,8 % in 1998) towards close to trend over the period 2000 to 2002 (3,3 % on average). Although output growth in 1999 could be lower than assumed in the programme mainly due to the current international environment, the Council considers that the medium-term macroeconomic scenario appears realistic. Indeed, 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 welcomes the Spanish budgetary strategy which relies on the restraint of primary current expenditure, and allows for a reinforcement of government investment and for a reduction in the tax burden. Interest payments as a share of GDP are expected to decrease moderately while primary current expenditure would carry the bulk of the adjustment. The Council also welcomes the envisaged increase in government investment given the catching-up needs of Spain. In addition, this will strengten compliance with the golden rule which Spain satisfies since 1997.

The underlying budgetary position of the targeted surplus of 0,1 % of GDP in 2002, under the central macroeconomic scenario, would provide sufficient room to prevent the deficit from breaching the 3 % of GDP threshold during cyclical downturn and would also allow for an additional safety margin in case of unforeseen developments. The Council therefore considers that the medium-term budgetary target of the Stability Programme is in conformity with the provisions of the Stability and Growth Pact. Nevertheless, the Council recalls that the long-term problem of population ageing must be addressed in the near future, and additional reforms will then be required. In this framework, the Council notes the government's commitment to take further steps with a view to a greater rationalisation of the social security system.

The foreseen budgetary adjustment is to be made mainly by the State, though all the general government sectors are committed to the budgetary effort. Social security accounts are expected to be in balance in the year 2000. The territorial government accounts, in the framework of the existing internal stability pact between the regions and the State, are targeted to be in balance in the year 2001. 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.

The Council considers that the programme is consistent with the Council Recommendation of 6 July 1998 on the Broad Guidelines of the Economic Policies of the Member States and the Community(2). The Council notes with approval the programme's emphasis on structural policies in the EMU context. Structural reforms have indeed played an important role in increasing the potential output of the Spanish economy, keeping a growth differential with respect to the EU area in a framework of low inflation and high employment creation. Therefore, the Council encourages the Spanish Government to implement the structural measures envisaged in the programme.

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

(2) OJ L 200, 16.7.1998, p. 34.