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COMMISSION OF THE EUROPEAN COMMUNITIES 
Brussels, 8.1.2003 
SEC (2003) 9 final 
EU RESTRICTED 
Recommendation for a 
COUNCIL DECISION 
on the existence of an excessive deficit in Germany - Application of Article 104(6) of the 
Treaty establishing the European Community 
(presented by the Commission) 
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EXPLANATORY MEMORANDUM Ce document 
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15. 11, 2006 
On 13 November 2002, the Commission released its Autumn ec( ilopic forecast, projectmg 
for Germany a general government deficit of 3.8% of GDP for ^^*^f^VTy""wyfiffnif*fh^ 
reference value of 3% of GDP. Based on this prima facie evidence, the Commission initiated 
the Excessive Deficit Procedure for Germany on 19 November 2002, with the adoption of the 
report foreseen in Article 104.3 .of the Treaty. On 18 December 2002, the Commission 
received the updated Stability Programme of Germany, which confirmed a government deficit 
figure of 3 V* % of GDP for 2002. The application-of the excessive deficit procedure (EDP) is 
governed by Article 104 of the Treaty (ex 104c), Council Regulation N01467/97 "on the 
speeding up and clarifying the implementation of the excessive deficit procedure", which is 
part of the Stability and Growth -Pact. It is also affected by the political commitments 
enshrined in the Resolution of the Amsterdam European Council on the Stability and Growth 
Pact of 17 June 1997. 
In an initial step of the EDP, the Commission prepared a report according to Art. 104.3 of the 
Treaty. That report was adopted by the Commission on 19 November. It concluded that in 
2002, the general government deficit in Germany was likely to reach 3.8% of GDP, 
significantly exceeding the reference value of 3%. Gross government debt was projected to 
reach 60.9% of GDP by end-2002, also rising above the respective reference value of the 
Treaty (60% of GDP). The excess of the German deficit in 2002 over the reference value did 
not result from an unusual event outside the control of the German authorities, nor was it the 
result of a severe economic downturn. On developments in 2003 the report concluded that, 
while it was clear that the deficit would be reduced, it was not yet possible to assess whether 
the deficit would come to fall below the 3% of GDP reference value. Moreover, given that the 
debt-to-GDP ratio was projected to rise to close to 62% of GDP by the end of 2003, any 
slippage in budgetary execution or a deceleration in nominal GDP growth would imply an 
additional deterioration of the debt ratio. 
Treaty Art. 104.4 states that "the Committee provided for in Article 114 (i.e. the Economic 
and Financial Committee) shall formulate an opinion on the report of the Commission". The 
Committee issued its opinion on 29 November 2002 (document EFC/ECFIN/593/02), largely 
subscribing to the Commission's Assessment. In particular, the EFC concluded that budgetary 
developments in Germany in 2002 were such that both the deficit and the debt criterion 
referred to in Article 104(2) were not respected. Consideration of other relevant factors 
supported the assessment based on these criteria. While taking note of the strong commitment 
by the German authorities to introduce all the necessary measures to correct the situation, the 
EFC, following the report by the Commission, considered that there was a risk of the general 
government deficit exceeding the Treaty's reference value again in 2003. The Committee also 
underlined that gross debt was unlikely to reverse its rising trend to comply with the Treaty's 
reference value of 60 percent of GDP. 
The Commission, having examined the relevant factors taken into account in its report and 
having regard to the opinion of the EFC, is of the opinion that an excessive deficit exists in 
Germany. This opinion, adopted by the Commission on [8 January 2003], is herewith 
addressed to the Council, according to Article 104.5 of the Treaty. The Commission 
recommends that the Council shall decide accordingly, in conformity with Article 104.6. In 
addition, the Commission is submitting to the Council a recommendation for a Council 
recommendation to be addressed to Germany with a view to bringing an end to the situation 
of an excessive government deficit, according to Treaty Article 104.7. 
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document 
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15. 11. 2006 
LE: Recommendation for a 
COUNCIL DECISION 
on the existence of an excessive deficit in Germany - Application of Article 104 
Treaty establishing the European Community 
THE COUNCIL-OF THE EUROPEAN UNION 
Having regard-to the Treaty establishing the European Community, and in particular Article 
104(6) thereof, 
Having regard to the recommendation from the Commission under article 104(6) of the 
Treaty, 
Having regard to the observations made by Germany, 
Whereas: 
(1) In stage three of Economic and Monetary Union (EMU), according to Article 104 of 
the Treaty Member States shall avoid excessive government deficits. 
(2) The Stability and Growth Pact is based on the objective of sound government finances 
as a means of strengthening the conditions for price stability and for strong sustainable 
growth conducive to employment creation. 
(3) The Amsterdam Resolution of the European Council on the Stability and Growth Pact 
of 17 June 1997 solemnly invites all parties, namely the Member States, the Council 
and the Commission to implement the Treaty and the Stability and Growth pact in a 
strict an timely manner. 
(4) The excessive deficit procedure under article 104 provides for a decision on the 
existence of an excessive deficit. The Protocol on the excessive deficit procedure 
annexed to the Treaty sets out further provisions relating to the implementation of the 
excessive deficit procedure. Council Regulation (EC) 3-605/93', as last amended by 
Commission Regulation (EC) 351/20022 lays down detailed rules and definitions for 
the application of the provision of the said Protocol. 
(5) Article 104(5) of the Treaty requires the Commission to address an opinion to the 
Council if the Commission considers that an excessive deficit in a Member State exists 
or may occur. The Commission has addressed such an opinion on Germany to the 
Council on 8 January 2003. According to this opinion: 
OJ No L332, 31.12.1993, p.7. 
OJ No L 055, 26.02.2002 p. 23. 
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(6) 
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Following the publication of its own Autumn forecast on 13 November 2002 which 
showed a government deficit of 3.8% of GDP in 2002 fS Ge™ the 
Comm^on m accordance with Article 104(3) of the Treaty, prepLd ^^er 
2002 a report on Germany which takes account of the relevanl factors; ember 
rnrm^T 7^ ^ 104(4) 0f the TT^ ** Economic and Financial 
Committee has formulated an opinion on the report of the Commission; 
Gemany has submitted an updated Stability Programme in accordance with Article 3 
of Council Regulatiorr(EC) No. 1466/97, whiclhad been adopSbyte^etal 
government on 18 December 2002. According to the update, the govZmenfdefid 
m 2002 amounted to 3 %% of GDP. vemment aeticit 
The Commission considers that there exists an excessive -dcficiUn, Germany; 
icicle 104(6) of the Treaty lay* down that the Coimcil should consider anv 
observati^s which the Member State concerned may wish to mTE^SS^ 
decides after an overall assessment whether an excessive deficit exists; 
The overall assessment leads to the following conclusions: in the late 1990s when 
w SeT^i&th T^f™8 eCOn0miC V™*- *»**» in ^~Iti n was linnted, with the general government deficit remaining at around 1 >/2% of GDP 
Thus, here had been little budgetary leeway to accomnLate for thetffec s 5 a 
cyclical sowdown or for any unexpected revenue shortfalls Sm a toTJrl 
7GWZ^2001-.fiFrO-a l0W <*M * ^P in 2000, the deficit rose" Z 
of GDP m 2002 significantly exceeding the reference value of 3% m that vear Wh^ 
general economic conditions have weakened m Germany as e sewhL L overT n 
budgetary expenditure and the shortfall in revenue can only partial be exnWdbv thetd oSs ^ rr i' 8overnirdebt is projected *L ^n^t % 
of 60% of GDP eXCeedmg' ^^ Sli8htly' ** resPective -f-ence value 
HAS ADOPTED THIS DECISION: 
Article 1 
From an overall assessment it follow* that an excessive deficit exists in Germany. 
Article 2 
This decision is addressed to the Federal Republic of Gemiany. 
Done at Brussels, 21 January 2003. 
For the Council Ce document 
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