EN Official Journal of the European Union CE 70/199

(2004/C 70 E/215)

WRITTEN QUESTION P-3024/03

by Ilda Figueiredo (GUE/NGL) to the Commission

(8 October 2003)

Subject: The need to suspend and revise the Stability Pact

Since 2000, the EU has been suffering from major economic downturn and rising unemployment. Forecasts for 2003 are not optimistic, strengthening the belief that the only way out of the recession is an expansionist budgetary policy, which would help to stimulate economic growth and employment, and this is confirmed by the Commission's acceptance of the so-called ‘Initiative for Growth’. On top of the real facts of the situation came the summer heatwave which destroyed thousands of hectares of forest as well as and urban areas, wiping out lives, property, infrastructure and social facilities, particularly in Portugal, 5 % of whose national territory was devastated, thus heightening the impact of the economic recession facing the country.

And over against this ever more tangible real state of affairs, we have the application of the irrational criteria of the Stability Pact, which despite protests from various sides, remains rock solid in terms of its objectives, while countries like Germany and France find themselves unable to meet the 3 % deficit limit for the third year running.

This policy has led to disinvestment in social public spending, encouraged the blind privatisation and selling off of the public heritage and inspired a dazzling array of creative accounting practices rendering public accounts less transparent. The Sapir report itself admits that the ‘Stability Pact’ has been responsible for the EU's weak economic growth. There are voices within national governments and within the Commission pointing out the need to modernise the Stability Pact and make it more flexible.

The Commission:

— Does it not believe that the application of the Stability Pact is worsening the factors underlying the EU's economic recession and penalising economic growth, and for this reason, should be suspended forthwith, as a matter of urgency, with a view to a global revision of the economic guidelines which will guarantee the requisite stimulus for economic growth and increased employment?

— Does it not believe that the implementation of the Stability Pact since 1997 has undermined public services and the social responsibility of the Member States for their citizens?

— Does it not believe that public investment spending should not be included when calculating the deficit? And, in the specific case of Portugal, given the current economic situation, does the Commission not believe that the investment spending arising from this summer's forest fires should be excluded when calculating the country's budgetary shortfall?

Answer given by Mr Solbes Mira on behalf of the Commission

(7 November 2003)

The Commission considers that the budgetary goals and rule of the EC Treaty and the Stability and Growth Pact remain valid. A budget position of ‘close to balance or in surplus’ provides an appropriate framework for prudent budgetary management that is in the economic self-interest of all countries. The budgetary objective of ‘close to balance or in surplus’ provides ample room to allow the automatic stabilisers to operate fully in response to economic downturns and to cope with the budgetary impact of major reforms. It is also an appropriate medium and long-term goal, given high debt levels in many countries, substantial contingent liabilities and because ageing populations will lead to large increase in spending on pension and health. All these challenges can only be met if countries make sustained efforts to run down public debt in the coming decade.

In the area of public finances, governments can contribute to the Lisbon goals by spending public money as efficiently as possible, by redirecting public expenditure towards growth-enhancing cost-effective expenditure subject to overall budgetary constraints, and by seeking a higher leverage of public support on private investment. Indeed, this is the reasoning behind guideline No 14 of the Broad Economic Policy Guidelines adopted by the Council on 26 June 2003. This guideline contains several ways in which the public sector should enhance its contribution to growth, one being ‘by redirecting, i.e. while respecting overall budgetary constraints, public expenditure towards growth-enhancing cost-effective investment in physical and human capital and knowledge’. The implementation of this guideline together with structural reforms on which the Council has repeatedly given priority will boost economic growth and employment.

The interaction between the Union's budgetary rules and public investment has been investigated in detail in the report Public Finances in Economic and Monetary Union (EMU) 2003 (1). A careful analysis of the data fails to show any clear-cut link between change in the investment ratio and the provisions of the Union's framework for fiscal surveillance. Indeed public investment expenditures in many Member States have stopped falling after the beginning of monetary union.

Regarding the specific case of Portugal, on 17 September 2003 the Commission proposed an appropriation of EUR 48,5 million in the context of the Union solidarity fund on account of the forest fires. Finally, with respect to budgetary developments the Council on 11 November 2002 made recommendations to Portugal with a view to bringing an end to the situation of an excessive government deficit in 2003 at the latest. In monitoring the situation — in order to establish whether the Portuguese authorities comply with the Council recommendations — the Commission considers all relevant information, including the latest economic forecasts that take into account the events of summer 2003.

(1) COM(2003) 283 final.