COUNCIL OPINION of 1 December 1998 on the Convergence programme of Denmark, 1998-2005jo1
Date: 1998-12-01
Institutions: Council of the European Union
Subjects: Denmark, budget policy, coordination of EMU policies, economic convergence, economic reform, government programme

6.1.1999

EN

Official  Journal  of  the  European  Communities

C  3/1

I

(Information)

COUNCIL

COUNCIL  OPINION

of  1  December  1998

on  the  Convergence  programme  of  Denmark,  1998(cid:220)2005

(1999/C  3/01)

THE  COUNCIL  OF  THE  EUROPEAN  UNION,

Having  regard  to  the  Treaty  establishing  the  European
Community,

Having  regard  to  Council  Regulation  (EC)  No  1466/97
of  7  July  1997  on  the  strengthening  of  the  surveillance  of
budgetary  positions  and  the  surveillance  and  coordi(cid:220)
nation  of  economic  policies(cid:216)(˛),  and  in  particular  Article
9(1)  and  (2)  thereof,

Having 
Commission,

regard 

to 

the 

recommendation  of 

the

After  consulting  the  Monetary  Committee,

HAS  DELIVERED  THIS  OPINION:

the  Council  examined 

On  1  December  1998 
the
Convergence  programme  for  Denmark  which  covers  the
period  1998(cid:220)2005.  The  programme  envisages  a  budget
surplus  of  2,6(cid:216)%  of  GDP  by  2001  and  of  3,5(cid:216)%  of  GDP
by  2005.  The  Council  considers  it  appropriate  that  the
programme  focuses  on  budgetary  consolidation  under(cid:220)
pinned  by  continued  structural  reform.  Moreover,  the
Council  considers  that  the  programme  is  consistent  with
the  Broad  Economic  Policy  Guidelines.

The  programme  is  built  upon  a  macro(cid:220)economic  forecast
showing  a  deceleration  in  the  strong  domestic  demand
led  growth  of  recent  years  towards  real  GDP  growth  of
slightly  over  2(cid:216)%  towards  the  end  of  the  projection
period.  For  the  macro(cid:220)economic  scenario  to  materialise,
and  given  the  high  capacity  utilisation  and  tight  labour
market  in  Denmark,  continued  growth  in  labour  supply
essential.
through 

labour  market 

reform 

is 

The  Council  notes  that  the  realisation  of  the  growth
scenario  appears 
inter  alia,
continued  reform  of  the  supply(cid:220)side  of  the  Danish
economy.

realistic  but 

requires, 

is  an 

towards 

the  euro 
low 

With  respect  to  inflation,  Denmark  continues  to  fulfil  the
convergence  criterion  with  some  margin.  The  fixed
important
exchange(cid:220)rate 
condition  for  maintaining 
inflation  expectations.
However,  domestically  induced  underlying  inflation  has
clearly  been  accelerating  during  1998  and  given
Denmark’s  advanced  stage  in  the  business  cycle  and  the
tight  labour  market,  there  are  risks  to  the  future  inflation
outlook.  Any  inflationary  threats  should  be  dampened
via  fiscal  policy  and,  above  all,  through  further  structural
improvements  in  the  labour  market.

the  credibility  given  by  markets 

Denmark  has  met  the  convergence  criterion  on  the
long(cid:220)term  interest  rate  for  extended  period  of  time.  This
the
underlines 
exchange  rate  target  of  Danish  monetary  policy.  The
Council  notes  with  satisfaction  that  Denmark’s  partici(cid:220)
pation  in  the  ERM2  will  allow  Denmark  to  further
strengthen  the  credibility  of  its  monetary  policy.

to 

The  Council  welcomes  the  programme’s  strategy  of
increasing  the  general  government  budget  surplus  over
the  projection  period  towards  a  surplus  of  2,6(cid:216)%  of
GDP  by  2001  and  3,5(cid:216)%  of  GDP  by  2005.  This  will  be
achieved  via  a  moderate  easing  in  the  tax  burden  more
than  outweighed  by  a  reduction  in  primary  expenditure
and  reduced  net  interest  payments.  In  this  context  the
Council  considers  that  stricter  control  of  government
expenditure  is  called  for.

(˛)(cid:217)OJ  L  209,  2.8.1997,  p.  1.

The  Council  notes  that  the  government  gross  debt  ratio
in  Denmark  is  expected  to  fall  below  60(cid:216)%  in  1998.  The

C  3/2

EN

Official  Journal  of  the  European  Communities

6.1.1999

Council  welcomes  the  envisaged  further  reduction  of  the
gross  debt  ratio  to  below  40(cid:216)%  of  GDP  by  2005.  The
Council  notes  with  satisfaction  that  the  reduction  in  the
gross  debt  ratio  will  be  brought  about  by  significant
surpluses  in  the  primary  balance.

The  Council  notes  with  satisfaction  that  the  current
underlying  budgetary  position  of  Denmark  is  already
consistent  with  the  requirements  of  the  Stability  and
further
programme 
Growth  Pact.  The 
improvements 
thereby
the  government 
widening  the  safety  margin,  thus  allowing  room  for  the
operation  of  the  fairly  large  Danish  automatic  stabilizers.

foresees 
surplus, 

in 

Denmark’s  non(cid:220)participation 
might  indeed  call  for  such  a  wider  safety  margin.

the 

single  currency

in 

The  Council  welcomes  the  structural  reforms  included  in
the  programme.  The  tax  reform,  which  will  be  imple(cid:220)
mented  in  the  1999(cid:220)2002  period,  should  increase  private
savings  and  diminish  distortions 
in  the  present  tax
system.  Labour  market  reform,  already  proposed  by  the
government,  will  be  essential  for  further  improving  the
labour  market.  The  Council
functioning  of 
encourages 
further
to 
measures  if  the  proposed  reforms  should  turn  out  to  be
insufficient.

the  Danish  government 

take 

the 

COUNCIL  OPINION

of  1  December  1998

on  the  stability  programme  of  the  Netherlands  1999(cid:220)2002

(1999/C  3/02)

THE  COUNCIL  OF  THE  EUROPEAN  UNION,

Having  regard  to  the  Treaty  establishing  the  European
Community,

Having  regard  to  Council  Regulation  (EC)  No  1466/97
of  7  July  1997  on  the  strengthening  of  the  surveillance  of
budgetary  positions  and  the  surveillance  and  coordi(cid:220)
nation  of  economic  policies(cid:216)(˛),  and  in  particular  Article
5(1)  and  (2)  thereof,

Having 
Commission,

regard 

to 

the 

recommendation  of 

the

After  consulting  the  Monetary  Committee,

HAS  DELIVERED  THIS  OPINION:

On  1  December  1998,  the  Council  examined  the  stability
programme  of  the  Netherlands,  which  covers  the  period
1999(cid:220)2002.  The  Council  notes  that  the  programme  builds
on  the  significant  progress  towards  fiscal  consolidation

(˛)(cid:217)OJ  L  209,  2.8.1997,  p.  1.

in  the  four  preceding  years  and  aims  at
achieved 
reducing  further  the  general  government  deficit  and  the
debt  GDP  ratio.

scenario 

The  stability  programme  presents  three  macroeconomic
scenarios  for  the  period  1999(cid:220)2002.  For  reasons  of
prudence  the  programme  takes  as  a  basis  for  the
projections  of  the  general  government  aggregates  a
cautious  macroeconomic 
forecasting  GDP
growth  rates  of  2,25(cid:216)%  per  year.  Such  a  scenario
assumes  a  significant  slowdown 
in  economic  activity
from  its  current  levels  due,  mainly,  to  a  fall  in  external
demand.  It  is  under  this  scenario  that  the  government
deficit  is  projected  to  decline  to  around  1(cid:216)%  of  GDP  in
2002.  This  will  be  the  result  of  an  extension  of  the
double(cid:220)handed  approach,  consisting  of  reducing 
the
government  deficit  and  the  tax  burden  followed  during
the  period  1994(cid:220)1998,  covered  by  the  second  Dutch
the  Council
programme.  Moreover, 
convergence 
considers  that  the  stability  programme  is  consistent  with
the  Broad  Economic  Policy  Guidelines.

The  Council  acknowledges  that  the  Dutch  authorities
adopted  a  cautious  scenario  for  their  budget  policy  and
therefore  for  the  stability  programme  in  order  to  be  on  a
sound  position.  The  middle  scenario  of  the  stability
programme  which  is  based  on  an  annual  GDP  growth
rate  of  2,75(cid:216)%,  and  which  reflects  past  trends,  brings  the
projected  government  deficit  close  to  balance.  Finally  the
stability  programme  presents  a  more  favourable  scenario