WRITTEN QUESTION E-3459/01

by Charles Tannock (PPE-DE)and Theresa Villiers (PPE-DE) to the Commission

(4 January 2002)

Subject: The application of the Growth and Stability Pact

In Paragraph 1 of the Report on the Commission document The EU Economy 1999 Review (A5-0041/2000) the Parliament Calls upon the Council, in setting the broad Economic Guidelines,

to formulate policies, including microeconomic policies, designed to achieve full employment which are consistent with stable prices and a balanced budget over the whole economic cycle.

Does the Commission believe that it is these objectives which underlie the Growth and Stability pact and which Member States does the Commission believe are furthest from achieving them?

Can the Commission explain the rationale behind the rule which prevents receipts from privatisations being deducted from budgetary deficits given not only the boost to economic activity and efficiency that such privatisations can generate but also the fact that the sale of public assets result in real and not illusory benefits to national exchequers and appear to be consistent with the economic objectives outlined above?

Answer given by Mr Solbes Mira on behalf of the Commission

(25 January 2002)

The primary aim of the Stability and Growth Pact is to safeguard sound public finances as a means to ensure strong sustainable growth conducive to employment creation. In this way, national budgetary policies will support a stability-oriented monetary policy and ensure that Member States can deal with normal cyclical fluctuations without incurring excessive deficits.

Under this framework, budgetary positions in the euro area has continued to be consolidated in recent years. In 1997, the reference year for the Economic and Monetary Union (EMU) qualification among the first wave, the average budget deficit in the euro area was 2,6 % of gross domestic product (GDP) while in 2000 it had been reduced to 0,8 % of GDP. The majority of Member States have now achieved underlying budgetary positions that are close to balance or in surplus, in line with the requirements of the Stability and Growth Pact. However, in a few Member States (Germany, France, Italy and Portugal), budget positions still show deficits. This implies that further consolidation efforts will be necessary in the medium-term, as is also planned in the respective stability programmes.

On the issue of the neutrality of privatisation receipts to the government net lending in the European System of National and Regional Accounts in the Community (ESA), the efficiency and rationale of privatisations is in no way questioned by this recording. It should be recognised that in an economic accounting system like ESA, differently to the practice in cash based public accounts, a distinction is made between financial and non-financial transactions as well as financial and non-financial assets. The privatisation of a public corporation, that is, the sale of a financial asset (the shares in the corporation) against cash (also a financial asset) constitutes a typical financial transaction that neither has any impact on government net wealth nor implies any distribution of income between economic sectors. However, of course, when the economic efficiency gains materialise these will, amongst other things, show in the growth of tax bases and government revenues. Furthermore, it should be noted that privatisation receipts do contribute to reduce Maastricht gross debt.