EN    EN EN 
EN    EN  EUROPEAN COMMISSION 
Brussels, 15.6.2010 
SEC(2010) 747 final 
  
Recommendation for a 
COUNCIL RECOMMENDATION 
with a view to bringing an end to the situ ation of an excessive government deficit in 
Finland 
EN 2   EN Recommendation for a 
COUNCIL RECOMMENDATION 
with a view to bringing an end to the situ ation of an excessive government deficit in 
Finland 
THE COUNCIL OF THE EUROPEAN UNION, 
Having regard to the Treaty on the Functioning of the European Union, and in particular 
Article 126(7) thereof; 
Having regard to the recommendati on from the European Commission; 
Whereas: (1) According to Article 126 of the Treat y Member States shall avoid excessive 
government deficits. 
(2) The Stability and Growth Pact is base d on the objective of sound government finances 
as a means of strengthening the conditions fo r price stability and for strong sustainable 
growth conducive to employment creation. 
(3) The 2005 reform of the Stability and Growth Pact sought to strengthen its 
effectiveness and economic underpinnings as we ll as to safeguard th e sustainability of 
the public finances in the long run. It aimed at ensuring that in particular the economic 
and budgetary background was taken into account fully in all steps in the EDP. In this 
way, the Stability and Growth Pact pr ovides the framework supporting government 
policies for a prompt return to sound budge tary positions taki ng account of the 
economic situation. 
(4) The Council has decided on [13 July 2010], in accordance with Article 126(6) of the 
treaty, that an excessive deficit exists in Finland. 
(5) In accordance with Article 126(7) of the Treaty and Article 3 of Council Regulation 
(EC) No 1467/97 on speeding up and clarifying  the implementation of the excessive 
deficit procedure
1 (which is part of the Stability a nd Growth Pact), the Council is also 
required to make recommendations to the Member State concerned with a view to 
bringing the situation of excessive defic it to an end within a given period. The 
recommendation has to establish a deadline of  six months at the most for effective 
action to be taken by the Member State conc erned to correct the excessive deficit as 
well as a deadline for the correction of the excessive deficit, which should be 
completed in the year following its identification unless there are special circumstances. In deciding whether special ci rcumstances exist, “relevant factors” as 
clarified in Article 2(3) of  Regulation (EC) No 1467/97 s hould be taken into account. 
                                                
 
1 OJ L 209, 2.8.1997, p. 6.  
EN 3   EN Furthermore, in a recommendation to corr ect an excessive deficit the Council should 
request the achievement of a minimum annual improvement in the structural balance, 
i.e. the cyclically-adjusted balance excludi ng one-off and other temporary measures, of 
0.5% of GDP as a benchmark. 
(6) In the case of Finland, the relevant factors,  as clarified in Artic le 2(3) of Regulation 
(EC) No 1467/97 and examined in the Co mmission’s report unde r Article 124(3), 
were considered favourable. However, they do not suggest the existence of special 
circumstances warranting a departure from the standard deadline for correcting the deficit. In particular, according to the Commission services' spring 2010 forecast, the general government deficit would fall by a narrow margin below the 3% reference 
value under a no-policy-change  assumption already in 2011. 
(7) Prior to the global crisis, Finland built up a substantial surplus in public finances. This 
has allowed Finland provide for a relative ly large discretionary  fiscal stimulus 
amounting to 1.8% of GDP in 2009 and 1.1% in  2010 and to allow a full operation of 
automatic stabilisers. This ha s turned the general government finances into a deficit of 
2.2% of GDP in 2009. The deficit is projected  to widen further to 4.1% of GDP in 
2010 according to the April 2010 EDP notification presented by the Ministry of Finance. The Commission service's spring fore cast projected a slightly smaller deficit 
of 3.8% of GDP in 2010. The third supplemen tary budget presented by the Ministry of 
Finance to the Parliament on 14 May 2010 su ggests that tax revenue in 2010 could 
turn out by 0.5% of GDP higher-than-plan ned, principally on account of stronger 
corporate income tax accrual. This indicates upside risks to the current public finance projections, but given that no full-fledged update of these projections has been made, 
the deficit target for 2010 has not been o fficially changed and the current assessment 
remains valid. In 2011, both the Ministry of Finance and the Commission services’ forecast the general government deficit to  fall narrowly below 3% of GDP on a no 
policy change assumption. On the basis of the Commission services’ forecast, the 
correction of the excessive deficit in 2011 implies a fiscal effort of around 0.3 
percentage points of GDP in 2011. 
(8) The main tool in controlling central government expenditure are the multiannual 
spending limits, which exclude cyclically sensitive expenditure items and have therefore allowed the full operation of auto matic stabilisers. While this setup, in 
particular the free op eration of automatic stabiliser s, has supported economic activity 
and social cohesion over the cr isis period, it has also led to  a relatively sharp negative 
swing in public finances. This budgetary fr amework will therefore effectively support 
the reduction of central government e xpenditure pressures, including social 
expenditure, only once the economic recove ry is well underway. Local governments 
are responsible for a large part of age-rela ted public expenditure such as education, 
health and long-term care and they are not bound by centrally-i mposed expenditure 
limits. To compensate for increasing expenditure, local tax rates have typically been increased, avoiding building up debt at the municipal level but adding to the overall 
national tax burden. The government pursues reforming local governments' structures 
and service provision in the medium term with the aim of curbing expenditure growth 
related to population ageing.  
(9) In its opinion of 26 April 2010 on the mo st recent stability programme update, the 
Council assessed the long-term su stainability of Finland’s p ublic finances and invited 
the authorities to take timely action to de fine a comprehensive and concrete medium 
EN 4   EN term fiscal strategy to consolidate from 2011 onwards, also with a view to achieve the 
MTO and to restore the long-term su stainability of public finances.  
(10) The general government gross debt am ounted to 44% of GDP in 2009. The April EDP 
notification expects the debt  ratio to rise to  49.9% of GDP in 2010. The Commission 
spring forecast projected the debt ratio to grow slightly faster, reaching 50.5% of GDP 
in 2010 and 54.9% of GDP in 2011, still rema ining below the 60% of GDP reference 
value.  
(11) Enhanced surveillance under the EDP will require regular and timely monitoring of 
the progress made in the implementation of the fiscal consolidation strategy. In this 
context, a separate chapte r in the forthcoming updates of the Finnish stability 
programme could usefully be  devoted to this issue. 
(12) In general, in the view  of the Council, budgetary conso lidation measures should secure 
a lasting improvement in the general governme nt balance, while be ing geared towards 
enhancing the quality of the public finances and reinforcing the growth potential of the 
economy. 
HAS ADOPTED THIS RECOMMENDATION: (1) Recognising that Finland’s budgetary pos ition in 2010 resulted from measures 
amounting to 1.8% of GDP in 2009 and 1.1% in 2010, which is an adequate response 
to the downturn and were in line with the European Economic Recovery Plan 
principles, as well as from the free play of automatic stabilisers, the Finnish authorities 
should put an end to the present excessive  deficit situation at the latest by 2011.  
(2) The Finnish authorities should bring the ge neral government deficit below 3% of GDP 
in a credible and sustainable manner. Specifi cally, to this end, the Finnish authorities 
should:  
(a) implement the fiscal measures in 2010 as  envisaged in the la test update of the 
stability programme, while ensuring that  the planned breach of the 3%-of-GDP 
reference value would remain contained and temporary; 
(b) ensure a fiscal effort of at least ½% of GDP in 2011; 
(c) specify measures to ensure that the pl anned correction of the excessive deficit 
in 2011 is secured. 
(3) The Council establishes the deadline of [13 January 2011] for the Finnish government 
to take effective action to specify the meas ures that will be necessary to progress 
towards the correction of the excessive defi cit. The assessment of effective action will 
take into account economic developments compared with the economic outlook in the 
Commission services' spring 2010 forecast.  
The Finnish authorities should report on prog ress made in the implementation of these 
recommendations in a separate chapter in the forthcoming updates of the stability programme 
until the abrogation of the excessive deficit procedure. 
EN 5   EN In addition, the Council highlights the impor tance of achieving the medium-term objective 
(MTO) for appropriate budgetary management of  economic downturns and also with a view 
of restoring the long-term sustai nability of public finances. It  therefore invites the Finnish 
authorities to ensure that budgetary consolid ation towards the medium-term objective for the 
budgetary position –a structural surplus of 0.5%  of GDP – is sustained after the excessive 
deficit will have been corrected.  
This recommendation is addressed to the Republic of Finland. Done at Brussels,  
 For the Council 
 The President