EN    EN EN 
 
EN    EN  EUROPEAN COMMISSION 
Brussels, 15.6.2010 
SEC(2010) 746 final 
  
Proposal for a 
COUNCIL DECISION 
on the existence of an excessive deficit in Finland 
 
EN 2   EN EXPLANATORY MEMORANDUM  
1. T HE APPLICATION OF THE STABILITY AND GROWTH PACT IN THE CURRENT CRISIS 
SITUATION  
Many EU countries are presently facing genera l government deficits above the 3% of GDP 
reference value set in the Treaty. The often stro ng deterioration in the deficit as well as the 
debt positions must be seen in the context of the unprecedented global financial crisis and 
economic downturn in 2008/09. Several factors are at play. First, the economic downturn 
brings about declining tax revenue and rising social benefit expenditure (e.g. unemployment 
benefits). Second, recognising that  budgetary policies have an impor tant role to play in the 
current extraordinary economic situation, the Co mmission called for a fiscal stimulus in its 
November 2008 European Economic Recovery Plan (EERP), endorsed by the European 
Council in December. The Plan explicated that  the stimulus should be timely, targeted and 
temporary and differentiated across Member States to reflect their different positions in terms 
of public finance sustainability and competitiveness and should be reversed when economic conditions improve. Finally, severa l countries have taken measures  to stabilise the financial 
sector, some of which have impacted on the debt  position or constitute a risk of higher deficits 
and debt in the future, alt hough some of the costs of th e government support could be 
recouped in the future. 
The Stability and Growth Pact  requires the Commission to in itiate the excessive deficit 
procedure (EDP) whenever the deficit of a Me mber State exceeds the 3% of GDP reference 
value. The amendments to the Stability and Gr owth Pact in 2005 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 provides the framework supporting 
government policies for a prompt return to so und budgetary positions taking account of the 
economic situation, and thereby ensuring long -term sustainability of public finances. 
2. P
REVIOUS STEPS IN THE EXCESSIVE DEFICIT PROCEDURE  
Article 126 of the Treaty on the Functioning of the European Union lays down an excessive 
deficit procedure (EDP). This procedure is further specified in Council Regulation (EC) No 
1467/97 “on speeding up and clarifying the im plementation of the excessive deficit 
procedure”1, which is part of the Stability and Growth Pact. 
According to Article 126(2) of the Treaty, th e Commission has to monitor compliance with 
budgetary discipline on the basis of two criteria,  namely: (a) whether the ratio of the planned 
or actual government deficit to gross domestic  product (GDP) exceeds the reference value of 
3% (unless either the ratio ha s declined substantially and co ntinuously and reached a level 
that comes close to the reference value; or, a lternatively, the excess over the reference value is 
only exceptional and temporary an d the ratio remains close to the reference value); and (b) 
whether the ratio of government debt to GDP exceeds the reference value of 60% (unless the 
ratio is sufficiently diminishing and approachin g the reference value at a satisfactory pace). 
                                                 
1 OJ L 209, 2.8.1997, p. 6. The report also takes into account the “Specifications on the implementation 
of the Stability and Growth Pact and guidelines on the format and content of stability and convergence 
programmes”, endorsed by th e ECOFIN Council of 10 November 2009, available at 
http://ec.europa.eu/economy_finance/sgp/legal_texts/index_en.htm. 
 
EN 3   EN Article 126(3) stipulates that, if a Member St ate does not fulfil the requirements under one or 
both of these criteria, the Commi ssion has to prepare a report. Th is report also has to “take 
into account whether the government deficit ex ceeds government investment expenditure and 
take into account all other relevant factors, including the medium-term economic and 
budgetary position of the Member State”. 
On the basis of the data notified by the Finnish authorities in April 20102and taking into 
account the Commission services’ spring 2010 forecast, the Commission adopted a report 
under Article 126(3) for Finland on 12 May 20103. 
Subsequently, and in accordance with Article 126(4), the Economic and Financial Committee 
formulated an opinion on the Commission report on [27 May 2010]. 
3. T HE EXISTENCE OF AN EXCESSIVE DEFICIT  
According to the EDP notificati on, the general government deficit in Finland is planned to 
reach 4.1% of GDP in 2010, thus exceeding the 3% of GDP reference value. The Commission 
report under Article 126(3) considered that the planned deficit was not close to the 3% of 
GDP reference value. The third supplementary budget presented by the Ministry of Finance to 
the Parliament on 14 May 2010 suggests that ta x revenues in 2010 could turn out by 0.5% of 
GDP higher-than-planned, principally on account of stronger corporate tax accrual. This 
indicates upside risks to the cu rrent public finance projections, but given that no full-fledged 
update of these projections has been made, the deficit target for 2010 ha s not been officially 
changed and the current assessment remains valid. The planned excess over the reference 
value can be qualified as exceptional within th e meaning of the Treaty and the Stability and 
Growth Pact. In particular, it does result from a severe economi c downturn in the sense of the 
Treaty and the Stability and Growth Pact and the stimulus measures taken as a response to the 
economic downturn in line with the European Economic Recovery programme. According to 
the Commission services' spring 2010 forecast, real GDP contracted by 7.8% in 2009 and is 
forecast to recover in 2010 at 1.4%. Furthermor e, the planned excess over the reference value 
can be considered temporary. According to th e Commission services’ spring 2010 forecast, 
the deficit will fall below the reference valu e in 2011, supported by the projected economic 
recovery taking hold. The deficit crite rion in the Treaty is not fulfilled. 
According to the EDP notification, the general government gross debt remains below the 60% 
of GDP reference value at 49.9% of GDP in 2010. According to the Commission services' 
spring 2010 forecast, the debt ratio is forecast  at 50.5% of GDP in 2010 and to increase to 
54.9% of GDP in 2011. The debt crit erion in the Treaty is fulfilled. 
In line with the provisions in the Treaty and the Stability and Growth Pact, the Commission 
also analysed in its report “relevant factors” . According to the Stability and Growth Pact, 
these can only be taken into acc ount in the steps leadi ng to the decision on the existence of an 
                                                 
2 According to Council Regulation (EC) No 479/2009, Member States have to report to the Commission, 
twice a year, their planned and actual government deficit and debt levels. The most recent notification 
of Finland can be found at: 
 http://epp.eurostat.ec.europa.eu/portal/page/porta l/government_finance_statistics/excessive_deficit/edp_
notification_tables. 
3 All EDP-related documents for Finland can be found at the following website: 
 http://ec.europa.eu/ec onomy_finance/sgp/defic it/countries/index_en.htm. 
 
EN 4   EN excessive deficit if the deficit satisfies the doubl e condition of closeness and temporariness. In 
the case of Finland, the double condition is not met. Considered on their own merit, the 
relevant factors in the current case on balan ce seem to be relatively favourable, based on the 
good track record of fisc al policy in Finland. 
The opinion of the Economic and Financial Committee in accordance with Article 126(4) of 
the Treaty is consistent with the assessmen t in the Commission report under Article 126(3). 
The Commission, having taken into account its report under Article 126(3)  and the opinion of 
the Economic and Financial Committee under Arti cle 126(4), is of the opinion that an 
excessive deficit exists in Finland. This opinion, adopted by the Commission on [15 June 
2010], is herewith addressed to the Council according to Article 126(5). The Commission 
proposes that the Council shall decide accordi ngly, in conformity with Article 126(6). In 
addition, the Commission is submitting to the Council a recommendation for a Council 
Recommendation to be addressed to Finland with  a view to bringing the situation of an 
excessive deficit to an end according to Article 126(7). 
4. R ECOMMENDATIONS TO END THE EXCESSIVE DEFICIT SITUATION  
According to Article 3(4) of Counc il Regulation (EC) No 1467/97, the Council 
recommendation under Article 126(7 ) has to establish a deadline of six months at most for 
effective action to be taken by the Member State concerned as well as a deadline for the 
correction of the excessive deficit, which “sho uld be completed in the year following its 
identification unless there are sp ecial circumstances”. Article 2(6) of the Regulation implies 
that the “relevant factors” considered in the Commission report under Article 126(3) of the 
Treaty have to be taken into account in deciding whether specia l circumstances exist. Article 
3(4) of the Regulation specifies  that the Council has to recommend that the Member State 
achieves a “minimum annual improvement of at  least 0.5% of GDP as a benchmark, in its 
cyclically adjusted balance net of one-off and temporary measures, in order to ensure the 
correction of the excessive deficit within the deadline set in the recommendation”. 
In the case of Finland, the relevant  factors, as clarifie d in Article 2(3) of  Regulation (EC) No 
1467/97 and examined in the Commission’s report under Article 124(3) , were considered 
favourable. However, they do not suggest the ex istence of special circumstances warranting a 
departure from the standard deadline for correct ing 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 un der a no-policy-change assumption already in 
2011. Against this background, it is appropriate to allow the Finni sh authorities to implement 
the fiscal measures in 2010 as envisaged, while ensuring that the planned breach of the 3%-
of-GDP reference value would remain cont ained and temporary. The authorities should 
specify measures to ensure that the planned correction of the excessive deficit in 2011 is 
sustained. 
Enhanced surveillance under the EDP, which seems necessary in view of the deadline for the 
correction of the excessive deficit, will requir e regular and timely monitoring of the progress 
made in the implementation of the fiscal consol idation strategy to ensure  the correction of the 
excessive deficit. In this context, a separate chapter in the 2011 update of the Finnish Stability 
Programme could usefully be  devoted to this issue. 
 
EN 5   EN  
  
Comparison of key macroeconomic and budgetary projections 
    2007 2008 2009 2010 2011 
COM spring 2010  4.9 1.2 -7.8 1.4 2.1 Real GDP  
(% change) Min. of Fin. spring 2010 4.9 1.2 -7.8 1.1 2.1 
COM spring 2010 1 5 4.1 -5 -4.6 -3.8 Output gap 
(% of potential GDP) Min. of Fin. spring 2010 n.a. n.a. n.a. n.a. n.a. 
COM spring 2010  5.2 4.2 -2.2 -3.8 -2.9 General government balance 
(% of GDP) Min. of Fin. spring 2010 5.2 4.1 -2.4 -4.2 -2.2 
COM spring 2010  6.7 5.6 -1 -2.6 -1.7 Primary balance 
(% of GDP) Min. of Fin. spring 2010 n.a. n.a. n.a. n.a. n.a. 
COM spring 2010  2.6 2.1 0.3 -1.4 -1 Cyclically-adjusted balance 
(% of GDP) Min. of Fin. spring 2010 n.a. n.a. n.a. n.a. n.a. 
COM spring 2010  2.6 2.1 0.4 -1.3 -1 Structural balance2 
(% of GDP) Min. of Fin. spring 2010 n.a. n.a. n.a. n.a. n.a. 
COM spring 2010  35.2 34.2 44 50.5 54.9 Government gross debt 
(% of GDP) Min. of Fin. spring 2010 35.2 34.2 44 49.9 51.7 
Notes :       
1 Based on estimated potential growth of 2.2%, 2.1%, 1.1%, 1.0 and 1.3% respectively in the period 2007-2011. 
2 Cyclically-adjusted balance excluding one -off and other temporary measures. On e-off and other temporary measures 
are specified as 0.1% of GDP in 2009 and 0.2%  of GDP in 2010, both deficit-increasing  according to the Commission 
services' spring 2010 forecast. 
              
Source :       
Ministry of Finance spring 2010 for ecast; Commission services’ spring 2010 fo recasts (COM); Commission services’ 
calculations. 
 
EN 6   EN  
Proposal for a 
COUNCIL DECISION 
of 15.6.2010 
on the existence of an excessive 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(6) thereof, 
Having regard to the proposal from the European Commission, 
Having regard to the observations made by Finland, Whereas: (1) According to Article 126 of the Treaty on the Functioning of the European Union 
Member States shall avoid ex cessive 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 excessive deficit procedure (EDP) under Article 126 of the treaty, as clarified by 
Council Regulation (EC) No 1467/97 on  speeding up and clarifying the 
implementation of the excessive deficit procedure
4 (which is part of the Stability and 
Growth Pact), provides for a decision on the existence of an excessive deficit. The Protocol on the excessive deficit procedur e annexed to the Treaty sets out further 
provisions relating to the implementation of the EDP. Council Regulation (EC) No 
479/2009
5 lays down detailed rules and definition s for the application of the provision 
of the said Protocol.  
(4) 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 
                                                 
4 OJ L 209, 2.8.1997, p. 6.  
5 OJ L 145, 10.6.2009, p. 1.  
 
EN 7   EN policies for a prompt return to sound budge tary positions taki ng account of the 
economic situation. 
(5) Article 126(5) of the Treaty requires th e Commission to address an opinion to the 
Council if the Commission considers that an ex cessive deficit in a Member State exists 
or may occur. Having taken into account it s report in accordance with Article 126(3) 
and having regard to th e opinion of the Economic and Financial Committee in 
accordance with Article 126(4), the Commission  concluded that an excessive deficit 
exists in Finland. The Commission therefor e addressed such an opinion to the Council 
in respect of Finland on [15 June 2010]6. 
(6) Article 126(6) of the Treaty states that the Council should consider any observations 
which the Member State concerned may wish to make before deciding, after an overall 
assessment, whether an excessive deficit exis ts. In the case of Finland, this overall 
assessment leads to the following conclusions. 
(7) According to the data notified by the Fi nish authorities in April 2010, the general 
government deficit in Finland is pla nned to reach 4.1% of GDP in 2010, thus 
exceeding the 3% of GDP reference valu e. While the third supplementary budget 
presented by the Ministry of Finance to the Parliament on 14 May 2010 suggests that 
tax revenues in 2010 could turn out higher-than -planned, this has not officially altered 
the deficit target. The planned deficit is not  close to the 3% of GDP reference value, 
but the planned excess over the reference value can be qua lified as exceptional within 
the meaning of the Treaty and the Stability and Growth Pact. In particular, it does 
result from a severe economi c downturn in the sense of the Treaty and the Stability 
and Growth Pact. Furthermore, the planne d excess over the reference value can be 
considered temporary. According to the Commission services’ spring 2010 forecast, 
the deficit will fall below the reference value in 2011, supported by the projected economic recovery taking hold. The deficit criterion in the Treaty is not fulfilled. 
(8) According to the data notified by the Fi nish authorities in April 2010, the general 
government gross debt remains below the 60% of GDP referenc e value at 49.9% of 
GDP in 2010. The Commission services’ spring 2010 forecast projects the debt ratio to 
be at 50.5% of GDP in 2010 and to increase  to 54.9% of GDP in 2011, still to remain 
below the 60% of GDP reference value. The debt criterion in the Treaty is fulfilled. 
(9) According to Article 2(4)  of Council Regulation (EC) No 1467/97, “relevant factors” 
can only be taken into account in the st eps leading to the Council decision on the 
existence of an excessive deficit in acco rdance with Article 126(6) if the double 
condition - that the deficit remains close to the reference value and that its excess over 
the reference value is temporary - is fully  met. In the case of Finland, this double 
condition is not met. Therefore,  relevant factors are not take n into account in the steps 
leading to this decision. 
                                                
 
6 All EDP-related documents for Finland can be found at the following website: 
 http://ec.europa.eu/ec onomy_finance/sgp/defic it/countries/index_en.htm. 
 
EN 8   EN HAS ADOPTED THIS DECISION: 
Article 1 
From an overall assessment it follows that  an excessive deficit exists in Finland. 
Article 2 
This decision is addressed to the Republic of Finland. 
Done at Brussels, 15.6.2010 
 For the Council 
 The President