EN    EN EN 
 
EN    EN  EUROPEAN COMMISSION 
Brussels, 12.5.2010 
SEC(2010) 595 final 
  
Recommendation for a 
COUNCIL OPINION 
on the updated stability programme of Cyprus, 2009-2013 
 
EN 2   EN EXPLANATORY MEMORANDUM  
1. G ENERAL BACKGROUND  
The Stability and Growth Pact is based on the objective of sound government finances as a 
means of strengthening the conditions for pric e stability and for strong sustainable growth 
conducive to employment creation. The 2005 reform  of the Pact acknowledged its usefulness 
in anchoring fiscal discipline but sought to  strengthen its effectiveness and economic 
underpinnings as well as to safeguard the sustaina bility of the public finances in the long run. 
In particular, it introduced greater flexibility in the application of the rules governing the 
excessive deficit procedure, notably with regard  to the definition of "exceptional 
circumstances" and the setting of deadlines for the correction of an  excessive deficit. 
Council Regulation (EC) No 1466/97 on the streng thening of the surveillance of budgetary 
positions and the surveillance and coordination of economic policies1, which is part of the 
Stability and Growth Pact, stipulates that each Member State has to submit, to the Council and the Commission, a stability or convergence pr ogramme and annual updates thereof. Member 
States that have already a dopted the single currency submit (updated) stability programmes 
and Member States that have not yet adopted it submit (upda ted) convergence programmes. 
In accordance with the Regulation, the Council delivered an opinion on the first stability 
programme of Cyprus on 4 March 2008 on th e basis of a recommendation from the 
Commission and after having cons ulted the Economic and Financial Committee. As regards 
updated stability and convergence programmes, the Regulation foresees that these are 
assessed by the Commission and examined  by the Committee mentioned above and, 
following the same procedure as set out above , the updated programmes may be examined by 
the Council.  
2. B
ACKGROUND FOR THE ASSESSMENT OF THE UPDATED PROGRAMME  
The Commission has examined the most recent update of the stability programme of Cyprus, 
submitted on 1 April 2010, and has adopted a recommendation for a Council Opinion on it. 
In order to set the scene against which th e budgetary strategy in the updated stability 
programme is assessed, the follo wing paragraphs summarise: 
(1) the Commission Communication of 26 N ovember 2008 (“A European Economic 
Recovery Plan”); 
(2) the conclusions of the Economic and Fina ncial Affairs Council of 20 October 2009 on 
the “Exit strategy”;  
(3) the most recent assessment of the country ’s position under the preventive arm of the 
Stability and Growth Pact (summary of th e Council Opinion on the previous update of 
the stability programme). 
                                                 
1 OJ L 209, 2.8.1997, p. 1. The documents referred to in this text are available at:  
http://ec.europa.eu/economy_finance/sgp/index_en.htm. 
 
EN 3   EN 2.1. The Commission Communication of 26 November 2008 (“A European 
Economic Recovery Plan”) 
In view of the unprecedented scale of the global cr isis that hit financial markets and the world 
economy in 2008-2009, the European Commissi on had called for a European Economic 
Recovery Plan (EERP)2. The plan proposed a co-ordinated  counter-cyclical macro-economic 
response to the crisis in the form of an ambitious set of actions  to support the economy 
consisting of (i) an immediate budgetary impul se amounting to € 200 bn. (1.5% of EU GDP), 
made up of a budgetary expansion by Member States of € 170 bn. (around 1.2% of EU GDP) 
and EU funding in support of immediate acti ons of the order of € 30 bn. (around 0.3 % of EU 
GDP); and (ii) a number of prio rity actions grounded in the Lisbon Strategy and designed to 
adapt our economies to long-term challenges, continuing to implement structural reforms 
aimed at raising potential growth. The plan called  for the fiscal stimulus to be differentiated 
across Member States in accordance with their positions in terms of sustainability of 
government finances and competitive positions. In particular, for Member States outside the 
euro area with significant external and internal imba lances, budgetary policy should 
essentially aim at correcting such imbalances . The plan was agreed by the European Council 
on 11 December 2008.  
2.2. The conclusions of the Economic and Financial Affairs Council of 20 October 
2009 on the “Exit strategy” 
Following first signs of a recovery from the crisis , particularly the halt of the sharp decline in 
economic activity, the stabilisation of financia l markets and the improvement in confidence, 
the Council concluded on 20 October 2009 that, while in view of the fragili ty of the recovery 
it was not yet time to withdraw the support governments provided to  the economy and the 
financial sector, preparing a coordinated strate gy for exiting from the broad-based policies of 
stimulus was needed. Such a strategy should strike a balance betw een stabilisation and 
sustainability concerns, take into account the interaction between the different policy 
instruments, as well as the discussion at globa l level. Early design and communication of such 
a strategy would contribute to underpinning co nfidence in medium-term policies and anchor 
expectations. Beyond the withdrawal of the s timulus measures of the European Economic 
Recovery Programme, substantial fiscal cons olidation was required in order to halt and 
eventually reverse the increase in debt and restore sound fiscal positions. Increasing the 
efficiency and effectiveness of public finances and the intensification of structural reform 
were desirable even in the shor t term as they would contribute to fostering potential output 
growth and debt reductions. The Council agreed on the following principles of the fiscal exit 
strategy: (i) the strategy should be coordina ted across countries in  the framework of a 
consistent implementation of the Stability and Gr owth Pact; (ii) timely withdrawal of fiscal 
stimulus was needed, taking country-specific circumstances into account; (iii) the pace of 
consolidation should be ambitious, in most countries going well beyond the benchmark of 0.5% of GDP per annum in structural terms; and (iv) the credibility of the strategy should be 
underpinned by measures to enhance the quality of public finances and ambitious structural 
reform efforts to raise employ ment and potential growth.  
                                                
 
2 Communication from the Commission to the European Council of 26 November 2008. 
 
EN 4   EN 2.3. The assessment in the Council Opinion on the previous update 
In its opinion of 3 April 2009, the Council summa rised its assessment of the previous update 
of the stability programme, covering the period 2008-2012, as follows. The Council considered that "fiscal stance in 2009 will be e xpansionary due to the adoption of significant 
stimulus measures in 2009 in line with the EERP.  In the subsequent years, the fiscal balance 
is projected to continue worsening. The implied fiscal loosening does no t appear justified in 
view of the relatively good ec onomic prospects and the existence of a large external 
imbalance. Moreover, against the background of a sharp deterioration in the global economic 
environment, the budgetary strategy  is subject to sign ificant downside risks,  with the growth 
assumptions underlying the macroeconomic scenar io of the programme being favourable. In 
the light of the high external imbalances, ma intaining prudent policies and strengthening 
fiscal sustainability should be a major priorit y. Therefore, controlling current expenditure and 
avoiding procyclicality represen ts a major challenge for the fiscal policy in Cyprus. In 
addition, fostering the quality of public finances is important also  with a view to underpinning 
a smooth adjustment of the economy in the light of  the imbalances it is faced with". In view 
of this assessment, the Council invited Cyprus to "(i) impl ement the 2009 fiscal policy as 
planned in line with the EERP and within the framework of the SGP, while avoiding further 
deterioration of public finances in 2009 compared  to the target; (ii) reverse the projected 
increase of the fiscal deficit in 2010 and be yond, by limiting the increase in expenditures in 
order to ensure a sound fiscal position in the medium term; (iii) in view of the projected 
impact of ageing on government expenditure, stre ngthen the long-term sust ainability of public 
finances by pursuing the reform of th e pension and health care systems". 
 
EN 5   EN Recommendation for a 
COUNCIL OPINION 
on the updated stability programme of Cyprus,  2009-2013 
THE COUNCIL OF THE EUROPEAN UNION, 
Having regard to the Treaty on the Functioning of the European Union, Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of 
the surveillance of budgetary pos itions and the surveillance and coordination of economic 
policies
3, and in particular Article 5(3) (for SP) thereof, 
Having regard to the recommendation of the Commission, After consulting the Economic  and Financial Committee, 
HAS DELIVERED THIS OPINION: (1) On [DD Month 2010] the Council examin ed the updated stability programme of 
Cyprus, which covers the period 2009 to 2013. 
(2) In 2009 economic activity contracted by 1.7%. This is the first time Cyprus has 
experienced negative growth in the last th irty-five years. Weak domestic demand and 
an adverse external envir onment weighed strongly on grow th. In particular, high 
household indebtedness together with tight  lending conditions, a worsening labour 
market outlook and negative confidence ef fects led to a decline in private 
consumption. In parallel, investment reco rded a strong correction, amidst a fall in 
foreign demand for housing, lo w capacity utilisation and the restructuring of 
corporate balance sheets. Government c onsumption was the only demand component 
supporting economic activity, partly due to  the 1½% of GDP stimulus package 
implemented in line with the EERP. In addi tion to these discretionary measures, the 
contraction of economic activity, the fading out of the asset boom and a less tax-rich 
growth pattern has put public finances under significant pressu re. As a result, 
government finances turned into a deficit of 6.1% of GDP from a surplus of 0.9% of 
GDP in 2008. The crisis has also highlighted the accumulation of a high external 
imbalance, which reflects not only the lo w private sector net savings but also a 
deterioration of the net position of general government and competitiveness losses. A 
weak domestic demand and a sluggish extern al recovery are e xpected to weigh on 
recovery prospects. GDP growth is forecast to shrink further, although to a lesser 
extent, in 2010 and to recover mildly in 2011. Therefore, in the medium term, 
Cyprus is facing the challenge of enhanci ng growth, against the backdrop of a frail 
                                                 
3 OJ L 209, 2.8.1997, p. 1. The documents referred to in this text can be found at the following website: 
 http://ec.europa.eu/economy_finance/sgp/index_en.htm. 
 
EN 6   EN global economic recovery, while addressi ng the existing macroeconomic imbalances 
through maintaining prudent fiscal policie s. In the long term, the country is 
confronted with the need to strengthen the sustainability of public finances, in view 
of an ageing population.  
(3) Although much of the observed decline in ac tual GDP in the contex t of the crisis is 
cyclical, the level of potentia l output has also been negatively affected. In addition, 
the crisis may also affect potential gr owth in the medium term through lower 
investment, constraints in credit availabi lity and increasing structural unemployment. 
Moreover, the impact of the economic cr isis compounds the negative effects of 
demographic ageing on potential output a nd the sustainability of public finances. 
Against this background it will be essentia l to accelerate the pace of structural 
reforms with the aim of supporting potential growth. In particular, for Cyprus it is 
important to undertake reforms in the ar ea of the labour market, especially to 
strengthen lifelong learning opportunities, in  particular, with regard to the low-
skilled, older workers and unemployed peopl e as well as to ensure the timely and 
effective implementation of the planne d reforms in technical and vocational 
education. Moreover, there is a need to be tter align wage grow th with productivity, 
employment growth and competitiveness.  
(4) The macroeconomic scenario underlying the programme envisages that real GDP 
growth will rise from -1.7% in 2009 to  0.5% in 2010, before  recovering to an 
average rate of about 2.6% over the rest of the programme pe riod. Assessed against 
currently available information4, this scenario appears to  be based on favourable 
growth assumptions throughout the program me period. In particular, private 
consumption is expected to follow a fa vourable trend, driv en by a somewhat 
optimistic employment and wage growth. Th e Programme projects  real construction 
investment growth to remain negative in the short-term and to recover in the second 
half of the programme period. However, forward-looking indi cators suggest a 
stronger correction path for the construction sector in the medium-term than the one 
projected by the programme. Moreover, de spite the improving economic outlook, the 
fragility of recovery in C yprus' main trading partners entails non-negligible downside 
risks to the macroeconomic scenario in th e programme. Due to the contraction of 
economic activity in 2009 ther e was a significant, yet pa rtial, correction of the 
external deficit, which nevertheless rema ins high, at 8.5% of GDP, and is projected 
in the programme to rise again sharpl y to 12.9% of GDP by 2013 as imports are 
expected to pick up. The external imbalan ce is likely to weigh on economic growth 
over the medium-term. High public sector di ssavings would need to be financed by 
foreign debt or domestic private savings. Thus, the adjustment of the current account 
imbalance would require either  higher cost of debt-finan cing or higher savings from 
the private sector. The latter would imply lower output growth through lower private 
consumption or investment (crowding-out  effect). The programme's inflation 
projections appear realistic.  
(5) According to the programme, the general government deficit dete riorated strongly in 
2009, reaching a deficit of 6.1% of GDP fr om a surplus of 0.9% of GDP in 2008, 
reflecting mainly the impact of the cris is on government finances but was also 
                                                 
4 The assessment notably takes into account the Commissi on services' spring 2010 forecast, but also other 
information that has become available since then.   
 
EN 7   EN brought about by stimulus measures am ounting to 1½% of GDP which the 
government adopted in line with the Eur opean Economic Recovery Plan (EERP). 
According to the programme, fiscal policy is planned to be restrictive with a view to 
correcting the excessive deficit by 20 13 under the assumed growth scenario. 
(6) According to the update, the budgetary ta rget for 2010 is a deficit of 6% of GDP. 
The 2010 budget law (approved by the Parlia ment on 24 December 2009) targeted a 
deficit of 4.5% of GDP on the basis of an estimated outturn for the deficit in 2009 of 
about 3% of GDP. Given that the final ou tturn for 2009 was a deficit of 6% of GDP, 
the budget law would imply an even highe r deficit. However, the programme 
includes measures which aim to stop furthe r budgetary deteriorati on and stabilise the 
deficit at the same levels as in 2009. The update projects the re venue-to-GDP ratio to 
rise by about 1¼ percentage points in 2010 compared with the outturn of 2009. 
Public expenditure is expected to incr ease by 1¼ percentage points of GDP. Primary 
expenditure is planned to rise further mainly driven by a further rise in social transfers, subsidies and in the public wage bill. According to the update, interest payments are set to continue their declini ng trend, falling by a ¼ percentage point of 
GDP, despite the rising stock of debt. Public  investment is planned to remain at 2009 
levels. Overall, the fiscal policy stance, as measured by the structural balance (i.e. in 
cyclically-adjusted terms net of one-off an d other temporary measures), implied by 
the Programme will be tightening in  2010 of an order of ½% of GDP.  
(7) The main goal of the programme's medi um-term budgetary strate gy is to bring the 
general government balance below the 3%  of GDP reference value by 2013. The 
programme projects the nominal budget defi cit to decline to 4.5% of GDP in 2011 
(from 6.1% in the previous ye ar) and 3.4% in 2012 before it eventually reaches 2.5% 
in 2013. The primary balance is expected to follow a similar pattern and reach a 
balanced position by the end of the period,  from a deficit of 3.7% of GDP in 2010. 
The structural deficit, calculated acco rding to the commonly agreed methodology, 
would continue to improve after 2010, to reach around 3½% of GDP in 2011, just 
below 3% in 2012 and 2¼% in 2013. The annual fiscal effort would average at 3/4% 
of GDP per year over the period 2010-2013. The adjustment appears front-loaded, 
although measures taken in 2010 will have their full effect onl y in 2011. Moreover, 
measures taken within the context of the EERP will only be phased out by the end of 2010. Consolidation is planned to be achieved mainly from the revenue side of the 
budget, which is projected to increase  by 2.6 pp. of GDP between 2010 and 2013, 
while expenditure retrenchment would cont ribute an additional pe rcentage point of 
GDP. Revenue supporting measures include the fight against ta x evasion, a town 
planning amnesty, harmonisation of the minimum excise duties on petroleum 
products and application of the redu ced VAT on foodstuff and pharmaceutical 
products as well as dividend income from  semi-governmental organisations. As 
regards expenditure measures , the bulk of the programme's adjustment comes from 
controlling operational expenditure and reducing current transfers. The programme lists the targeting of social transfers and the containment of size and the rate of 
growth of public wage bi ll as expenditure categories for consolidation when 
consensus would be reached among soci al partners. The update confirms the 
commitment to the country-specific medi um-term budgetary objective (MTO), which 
is a balanced budgetary positi on in structural terms (i.e. in cyclically-adjusted terms 
net of one-off and other temporary meas ures). The MTO adequately reflects the 
 
EN 8   EN objectives of the Pact. The structural ba lances corresponding to the programme’s 
deficit targets imply that the MTO will not  be reached within the programme period.  
(8) The budgetary outcomes could be worse than targeted in the programme. In 
particular, the macroeconomic scenario projected in the update appears to be based 
on favourable growth assumptions throughout the programme period. On the revenue 
side, risks for public finances, particularly  in 2010-2011, are higher than in previous 
years and are associated with a possible sharper contraction and rebalancing of 
economic growth towards a less-tax rich composition of growth. In view of the 
expected moderate economic recovery and the pressure to stimulate domestic demand through increased public expenditure, the risks of potential overruns are non 
negligible. These risks are mainly a ssociated to the practise of submitting 
expenditure-increasing supplementary budgets  during the course of the year which, 
beyond the intended reallocati on of funds, has implied an increase in current 
expenditure. Moreover, social transfers might  turn higher than e xpected in view of 
the recent past track record and the absen ce of a targeting mechanism at place as well 
as of the somewhat optimistic employment (thus unemployment) growth projections.  
(9) The government gross debt-to-GDP ratio is estimated at 56.2% of GDP in 2009, up 
from 48.4% in the year before. Apart from the increase in the deficit and the decline 
in GDP growth, a stock-flow adjustment accounting for 1 percentage point of GDP 
contributed to the rise in the debt ratio. The latter re flects an accumulation of 
government assets, due to over-financing at the end of 2009 in order to meet 
obligations arising ear ly in January of 2010. The debt ra tio is projected to increase 
over the programme period, mainly driven by continued although declining primary 
deficits. The debt ratio will breach the refe rence value of 60% of GDP in 2010 and is 
projected to remain above the reference value throughout the programme period. It is 
projected to increase to around 63% of GDP in 2011 and 2012, thereafter slightly 
declining. In view of the downward risks to the macroeconomic scenario and the 
budgetary targets, the evolut ion of the debt ratio may be less favourable than 
projected in the programme.   
(10) The long-term budgetary impact of agei ng is significantly above the EU average, 
mainly as a result of a relatively high increase in pension expenditure as a share of GDP over the coming decades partly due to the fact that the pension scheme is still in 
a maturing phase. The programme discusses a pension reform introduced in April 
2009 that is projected to slightly reduce the increase in pensi on expenditure and, 
more significantly, increase the social secu rity contribution rate s. The reform would 
improve the long-term balance of the pension system and reduce risks to sustainability, however without having an effect on the overall assessment. The 
budgetary position in 2009 as estimated in the programme compounds the budgetary impact of population ageing on the sustainability gap. Im proving the primary balance 
over the medium term and implementing fu rther measures aimed at curbing the 
substantial increase in age-related expend iture, especially pension and healthcare 
expenditure, would contribute to reducing th e risks to the sustainability of public 
finances, which were assessed in th e Commission 2009 Sustainability Report
5 as 
                                                 
5 In the Council conclusions from 10 November 2009 on sustainability of public finances "the Council 
calls on Member States to focus attention to sustainability-oriented strategies in their upcoming stability 
and convergence programmes" and further "invites th e Commission, together with the Economic Policy 
 
EN 9   EN high. Medium-term debt projections that assume GDP growth rates to gradually 
recover to the values projected before the crisis, tax ratios to return to pre-crisis levels, and include the projected increase in  age-related expenditure show that the 
budgetary strategy envisaged in the progr amme, taken at face value and with no 
further policy change, would almost be e nough to stabilise the debt-to-GDP ratio by 
2020. 
(11) In recent years, Cyprus has over-achieved its budgetary targets, albeit in a context of 
buoyant economic activity and tax-rich compos ition of growth. In the recent past, the 
budgetary framework has been improved by the adoption of the Financial 
Management Accounting System (FIMAS), the gradual introduction of a three-year 
medium-term budgetary framework (MTBF)  and of Programme and Performance 
Budgeting (PPB). However, the practice of adopting supplementary budgets during 
the course of the year has implied an increase in current expenditure beyond the 
intended reallocation of funds. Accord ing to the Programme, the new budgeting 
framework is expected to cease this practi ce when fully implemented and lead to a 
more effective and efficient budgeting process, contributing to containing 
expenditure. At the same time, the ne w budgeting process would set a sound basis 
for reallocating expenditure in  favour of growth-enhancing activities consistent with 
the priorities set by the National Reform  Programme. However, the new framework 
is still at an early stage of implementation and is only foreseen to be fully in place in 
2012. Therefore, its impact could become ef fective only in the medium-term. The 
new framework's timely implementation would be critical for a successful and lasting 
consolidation of the public finances. 
(12) As regards the quality of public finances, the programme acknowledges its 
importance as a means to support potential growth and to ensure the long-term sustainability of public finan ces. In particular, the programme notes the impact the 
MTBF and PPB budgeting will have upon full implementation on the better 
allocation of resources to high-priority, grow th enhancing areas in tandem with better 
control of non-productive expenditure. On  the expenditure si de, the programme 
includes a review of recent projects aime d at enhancing infrastructure, through 
Private Public Partnerships (PPP), as well as measures to improve education, through the increased use of computers in primary and secondary education and improvements in research and academic institutions. The update also includes the allocation of funds to restructure public hospitals into autono mous units and the 
adoption of a National Health  Scheme, with the aim of improving effectiveness via 
regulated competition and cost containment. This seems essential as a means to control the anticipated expend iture increases associated to  an ageing population. On 
the revenue side, the programme emphasizes the positive impact the introduction of the MTBF would have on improving the accuracy and sensitivity of revenue 
forecasts over the medium-term. The author ities note that given the volatility of tax 
elasticities in recent years due  to the asset boom, revenue pr ojections were adapted to 
take into account the impact of asset pr ices and the compositi on of GDP growth. The 
programme also notes the constant mon itoring of the tax-benefit system by the 
                                                                                                                                                        
 
Committee and the Economic and Financial Committee, to further develop methodologies for assessing 
the long-term sustainability of public finances in time for the next Sustainability report", which is 
foreseen in 2012. 
 
EN 10   EN authorities in order to endure that work pays while ensuring the support to vulnerable 
social groups.  
(13) Overall, taking into account the risks to the budgetary targets mentioned above, the 
strategy to maintain supportive fiscal policie s also in 2010 can be considered in line 
with the EERP. However, following the ne gative effects of the economic crisis, the 
general government deficit is  to remain at 6% of GD P in 2010, gradually abating 
below the 3% reference value thereafter. While the programme's strategy foresees an average annual fiscal effort of ¾ per centage points of GDP over the period 2010-
2013, this is subject to downside risks. Theref ore, in view of the risks, the fiscal 
effort may not be sufficient to bring the de ficit below the 3% of GDP reference value 
by 2013 as planned. Moreover, the composition of the consolidatio n strategy of the 
programme appears to be based largely on revenue-increasing measures with 
expenditure retrenchment being minimal.  In fact, the programme projects the 
expenditure-to-GDP ratio to stabilise at a higher level in 2013 than the 2009 outturn. 
Measures that could reverse this situati on are still under discussion with the social 
partners and, thus, subject to risks regarding the modalities and the timing of their implementation. As a result, the evolution of the debt ratio, which is planned to 
exceed 60% of GDP from 2010 onward, may al so be less favourable than projected 
in the update. 
(14) As regards the data requirements specifi ed in the code of conduct for stability and 
convergence programmes, the programme pr ovides all required and optional data. 
The overall conclusion is that Cyprus' public fina nces deteriorated significantly as a result of 
the economic downturn and an expansionary fis cal stance due to the adoption of significant 
stimulus measures in line with the EERP. As a re sult, the budgetary balance turned to a deficit 
of 6.1% of GDP in 2009 from a surplus of 0.9% of GDP in 2008. The programme outlines a 
consolidation path starting in 2010 which aims to bring the general government balance below 
the 3% of GDP reference value by 2013. However, the adjustment is planned to be achieved 
mainly from the revenue side  of the budget while the expend iture-to-GDP ratio remains at 
historically high levels. Mo reover, against the backgrou nd of a frail global economic 
recovery, the budgetary strategy is subject to significant downs ide risks, as the growth 
assumptions underlying the macroeconomic scenar io of the programme are favourable. In the 
light of the high domestic and external im balances, maintaining prudent policies and 
strengthening fiscal sustainabi lity should be a priority. Th erefore, controlling current 
expenditure through the implementation of an  effective multi-annual budgetary framework 
would be an essential instrument to support th e achievement of the consolidation plans and 
budgetary targets. In addition, fostering the quality  of public finances is important also with a 
view to underpinning a smooth ad justment of the economy in the light of the imbalances it is 
faced with, notably by lifting potential GDP, enhancing competitiveness and further 
narrowing the external imbalance. 
In view of the above assessment, Cyprus is invited to: (i) limit the 2010 deficit to at most 6% of  GDP, if necessary by reinforcing the 
consolidation measures, notably in case macroeconomic developments proves less 
favourable than the programme scenario, an d take timely action to define a more 
expenditure-driven consolidation strate gy; seize opportunitie s beyond the announced 
fiscal effort to accelerate fiscal consolida tion and the reduction of the gross debt ratio 
back below the reference value; 
 
EN 11   EN (ii) implement, as envisaged, an effective multi-annual budgetary framework in order to 
ensure the adherence to the budgetary target s and to firmly contain expenditure over 
the medium-term;  
(iii) improve the long-term sustainability of  public finances by implementing reform 
measures to control pensi on and health care expenditure  in order to curb the 
projected increase in ag e-related expenditure. 
 
EN 12   EN Comparison of key macroeconomic and budgetary projections  
    2008 2009 2010 2011 2012 2013 
SP Apr 2010 3.6 -1.7 0.5 1.5 3.0 3.2 
COM May 2010 3.6 -1.7 -0.4 1.3 n.a. n.a. Real GDP 
(% change) SP Feb 2009 3.8 2.1 2.4 3.0 3.2 n.a. 
SP Apr 2010 4.4 0.2 2.7 2.0 2.0 2.0 
COM May 2010 4.4 0.2 2.7 2.5 n.a. n.a. HICP inflation 
(%) SP Feb 2009 4.4 2.0 2.5 2.5 2.5 n.a. 
SP Apr 2010 2.9 -1.3 -2.4 -2.5 -1.6 -0.5 
COM May 2010 3.4 -0.7 -2.1 -1.6 n.a. n.a. Output gap1 
(% of potential GDP) SP Feb 2009 0.8 -0.1 -0.6 -0.5 -0.2 n.a. 
SP Apr 2010 -17.7 -8.5 -11.5 -12.2 -12.6 -12.9 
COM May 2010 -17.6 -8.2 -6.8 -6.7 n.a. n.a. Net lending/borrowing vis-à-
vis the rest of the world 
(% of GDP) SP Feb 2009 -12.4 -12.1 -11.5 -10.9 -10.2 n.a. 
SP Apr 2010 43.5 40.3 41.6 42.8 43.6 44.2 
COM May 2010 43.5 40.3 41.2 41.3 n.a. n.a. General government revenue 
(% of GDP) SP Feb 2009 45.3 43.8 44.0 44.4 44.8 n.a. 
SP Apr 2010 42.6 46.4 47.6 47.2 47.0 46.7 
COM May 2010 42.6 46.4 48.3 49.0 n.a. n.a. General government 
expenditure 
(% of GDP) SP Feb 2009 44.3 44.6 45.5 46.3 47.1 n.a. 
SP Apr 2010 0.9 -6.1 -6.0 -4.5 -3.4 -2.5 
COM May 2010 0.9 -6.1 -7.1 -7.7 n.a. n.a. General government balance 
(% of GDP) SP Feb 2009 1.0 -0.8 -1.4 -1.9 -2.2 n.a. 
SP Apr 2010 3.7 -3.6 -3.7 -2.1 -1.0 0.1 
COM May 2010 3.7 -3.6 -4.4 -4.8 n.a. n.a. Primary balance 
(% of GDP) SP Feb 2009 3.9 1.5 0.8 0.2 -0.2 n.a. 
SP Apr 2010 -0.2 -5.6 -5.1 -3.5 -2.8 -2.3 
COM May 2010 -0.4 -5.8 -6.3 -7.1 n.a. n.a. Cyclically-adjusted balance1 
(% of GDP) SP Feb 2009 0.7 -0.8 -1.2 -1.7 -2.1 n.a. 
SP Apr 2010 -0.2 -5.6 -5.2 -3.6 -2.9 -2.3 
COM May 2010 -0.4 -5.8 -6.3 -7.1 n.a. n.a. Structural balance3 
(% of GDP) SP Feb 2009 0.7 -0.8 -1.2 -1.7 -2.1 n.a. 
SP Apr 2010 48.4 56.2 61.0 63.2 63.1 62.3 
COM May 2010 48.4 56.2 62.3 67.6 n.a. n.a. Government gross debt 
(% of GDP) 
SP Feb 2009 49.3 46.8 45.4 44.2 44.2 n.a. 
Notes : 
1Output gaps and cyclically-adjusted ba lances from the programmes as recalculated by Commission services on the basis 
of the information in the programmes. 
2Based on estimated potential growth of 2.0%, 2.8%, 2.8%, 2.8% and 2.8% respectively in the period 2009-2013. 
3Cyclically-adjusted balance excluding one- off and other temporary measures. One- off and other temporary measures are 
0.1% in years 2010, 2011 and 2012(all deficit reducing) acco rding to the most recent programme. There are no one-off and 
other temporary measures in the Commi ssion services' spring 2010 forecast. 
Source : 
Stability programme (SP); Commission services’ spring 2010 forecasts (COM); Commission services’ calculations.