3.

The deterioration in fiscal positions reflects to some extent the present weak economic situation. Gross domestic product (GDP) growth has been more subdued than projected in spring and several countries of the euro area have been in a technical recession. However, an important part of the slippage also derives from past policy inaction or from deficit increasing measures. The situation in the three Member States that are in the Excessive Deficit Procedure is of particular concern. The Council issued recommendations under Article 104(7) to Germany, France and Portugal, setting deadlines for taking corrective action and a deadline for the correction of the excessive deficit of 2003 for Portugal and 2004 for Germany and France. On the basis of the latest data on 2003 budgetary outcome and budgets for 2004, the Commission will have to assess the situation in Germany and Portugal. France had a deadline of 3 October 2003 to take effective corrective action according to the 104(7) Council recommendation. The Council, on the basis of the Commission recommendation of 8 October 2003, now has to decide whether France has complied with the recommendation under 104(7) Council recommendation. If the Council establishes that there has been no effective action in response to its recommendations, it may decide to give notice (Article 104(9)) to the Member State to take, within a specified time-limit, measures for the deficit reduction which is judged necessary by the Council in order to remedy the situation. In such a case, the Council may request the Member State concerned to submit reports in order to examine the adjustment efforts of that Member State. If a Member State fails to comply with the Council recommendations given under 104(9), the Council may decide to impose sanctions (Article 104(11)). In that case, the sanction will be a non-interest bearing deposit. The size of this deposit is defined in the Council Regulation (EC) No 1467/97 (1), Article 12, on speeding up and clarifying the implementation of the excessive deficit procedure. Such a deposit could not be considered in financial terms as a heavy sanction, and it would only be converted into a fine after two years if the deficit has not been corrected. As can be derived from the above, sanctions are not an immediate measure once a Member State experiences a deficit above 3 % of GDP. The EC Treaty foresees an interaction between the Council and the Member State concerned that gives quite a sufficient period of time to the Member State to correct the deficit. The EC Treaty provides for an increasing peer pressure being exercised by the Council in order to bring the deficit of the Member State concerned below the 3 % of GDP reference value. With respect to the entrance of the new Member States to the Union, it should be noted that aggregate figures tend to hide large differences in fiscal positions between individual countries. In 2001, the so-called Pre-Accession Fiscal Surveillance Procedure was established in order to prepare the candidate countries for the participation in the multilateral surveillance procedures currently in place within the Union. Most accession countries plan to reduce their budget deficits within a medium term context: the Pre-accession Economic Programmes foresee a reduction in the aggregate deficit for the accession countries from 3,8 % of GDP in 2001 to 2,7 % of GDP in 2005. It is also worthwhile to mention that on average, acceding countries have a lower debt level than current Member States, 36,9 % of GDP compared to 62,8 % of GDP respectively in 2001.