WRITTEN QUESTION P-2211/02

by Joaquim Miranda (GUE/NGL) to the Commission

(12 July 2002)

Subject: Growth and Stability Pact

A German newspaper has revealed that the Commission apparently intends to impose stiff penalties on Portugal for failing to remain within the 3 % budget deficit ceiling established under the Growth and Stability Pact.

Although a member of the College of Commissioners has already denied any such intention, the importance and the seriousness of the situation together with the lack of any recognised scientific basis for such a ceiling prompt the following question: Does the Commission not think that, on account of the obvious harmful effects of such a ceiling and the difficulties of remaining within it (particularly in the case of the economically weakest Member States and at a time of lower-than-expected economic growth), the requirement to remain within the ceiling should to some extent be relaxed?

Answer given by Mr Solbes Mira on behalf of the Commission

(12 August 2002)

Fiscal discipline contributes to maintaining an economic environment in which monetary policy can effectively pursue price stability. The fiscal framework of Economy and Monetary Union (EMU) (as established by the Treaty and the Stability and Growth Pact (SGP)) aims at combining budgetary discipline with budgetary flexibility through essentially two requirements. These are firstly the requirement for the general government deficit to remain below 3 % of Gross Domestic Product (GDP) (except in exceptional and temporary circumstances) and, secondly, the requirement to achieve and maintain a budgetary position close to balance or in surplus over the cycle.

Compliance with these two requirements both secures fiscal discipline and the sustainability of public finances and allows for flexibility in the conduct of national budgetary policies by ensuring the necessary room for manoeuvre for cyclical stabilisation through the working of the automatic stabilisers. Furthermore, the EMU budgetary rules and procedures provide incentives, and create the scope, to refocus the attention of budgetary policies towards medium-term concerns such as economic growth, employment and social cohesion. Finally, the SGP enhances the predictability and transparency of fiscal policies and facilitates the co-ordination of fiscal policies between Member States. In brief, sound public finances is in the economic interest of all countries.

As part of the framework for budgetary surveillance, Member States submit stability or convergence programmes on an annual basis, in which they set down a medium-term target for budget positions and an adjustment path towards. While budgetary targets in programmes are set down in nominal terms, the Commission does take account of the impact of the economic cycle when assessing Member States' budgetary positions. This is done by examining cyclically-adjusted budget balances.

The steps to be followed in an excessive deficit procedure are set down in the Treaty and in Council Regulation EC/1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies(1). While the Excessive Deficit Procedure ultimately does provide for the possibility to impose pecuniary sanctions, this can only occur after a long process involving several decisions by the Council. Recourse to sanctions is only envisaged if the Member State concerned repeatedly fails to take corrective actions to bring the deficit below 3 % of GDP within a specified period of time. Sanctions are not applied immediately upon a country being placed in an excessive deficit position.

(1) OJ L 209, 2.8.1997, p. 1.