WRITTEN QUESTION E-1621/02

by Charles Tannock (PPE-DE) to the Commission

(6 June 2002)

Subject: Interpreting the Growth and Stability Pact

Could the Commission clarify the way in which it interprets the Growth and Stability Pact? In particular, does the Commission take account of the economic cycle when making its assessment as to whether a Member State has complied with its provisions? Would the Commission agree that a Member State which has a budgetary deficit of any size well into an economic upturn is likely to be in a far worse state than a Member State with an annual budgetary deficit of over 2 % during an economic downturn if that Member State has demonstrated good financial discipline in the past as well as a capacity to return to surplus during an upturn, and does the Commission believe that it is necessary for Member States to achieve a balanced budget over the economic cycle if they are to comply with the terms of the Pact?

Finally, when making its assessment, does the Commission take into account the overall level of debt built-up by a particular Member State, and, if so, does the Commission believe that full compliance on the part of countries which have overall levels of debt well in excess of the Maastricht criteria (60 %) can only be achieved if those countries succeed in permanently reducing their overall level of indebtedness through such measures as large-scale privatisations?

Answer given by Mr Solbes Mira on behalf of the Commission

(9 July 2002)

In accordance with recital (14) of Council Regulation (EC) No 1466/97, of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies(1) when assessing the compliance of each Member State with the provision of the Stability and Growth Pact the Commission takes into account the relevant cyclical and structural characteristics of the economy of each Member State.

The Commission agrees that countries recording sound cyclically-adjusted budget balances (i.e. close-to-in balance or in surplus) are in a better position to face the budgetary impact of economic downturns than countries posting cyclically-adjusted deficits, even if the latter post nominal surpluses during upturns. Independently of the cyclical position, however, greatest attention has to be paid in the surveillance to the risk of nominal deficits exceeding the 3 % of gross domestic product (GDP) reference value.

In the Pact, Member States are committed to adhere to the medium-term objective for the budgetary position of close-to-balance or in surplus. The reference to the medium term in the Pact is interpreted in the Code of Conduct(2) as a reference to the business cycle. The Commission, therefore, uses cyclically-adjusted balances, in addition to nominal balances, as a tool when assessing the budgetary position.

When making its assessment, the Commission also takes into account the overall level of debt built-up by a particular Member State. Adherence to the close-to-balance or in surplus objective for the budget deficit is considered sufficient to ensure a continuous reduction of the overall debt level especially in highly-indebted countries. Measures such as privatisations are welcome in this sense, but are not required to ensure the full compliance.

(1) OJ L 209, 2.8.1997.

(2) Opinion of the Economic and Financial Committee on the content and format of the stability and convergence programmes, endorsed by the July 2001 Ecofin Council. The Code of Conduct has been adopted to facilitates the evaluation of the programmes by the Commission and Council.