COUNCIL OPINION of 8 February 1999 on the stability programme of Portugal, 1999-2002
Date: 1999-02-08
Institutions: Council of the European Union
Subjects: Portugal, economic policy, economic stabilisation

C  68/2

EN

Official  Journal  of  the  European  Communities

11.3.1999

of  1(cid:216)%  of  GDP 
in  2001  could  require  additional
corrective  measures  on  a  larger  scale  than  identified  in
the  programme.  The  Council  welcomes  the  commitment
on  the  part  of  the  Italian  government  to  take  such
additional  measures  if  needed.

from 

interest  payments 

The  Council  recalls  that,  besides  the  maintenance  of  a
high  primary  surplus,  Italy  should  seize  all  opportunities
to  secure  a  faster  decline  in  the  debt  ratio.  To  that  end,
the  Council  considers  that  any  additional  budgetary
savings  arising 
than
expected  in  the  programme  should  be  used  to  confirm
and  possibly  tighten  the  announced  budgetary  targets,
even  in  a  scenario  of  weaker  economic  growth.  But  as
the  dynamics  of  the  debt  are  highly  sensitive  to  the
growth  performance,  the  negative 
impact  of  weaker
growth  should  be  limited  as  much  as  possible,  namely
through  a  higher  contribution  from  privatisation  receipts.
Therefore,  the  Council  invites  the  Italian  Government  to
accelerate  its  privatisation  plans.

lower 

The  Council  takes  note  that  the  Italian  government  is
targeting  the  stabilisation  of  pension  expenditure  as  a

in 

the  years  covered  by 

the
percentage  of  GDP 
programme.  The  commitment 
to  adopt  corrective
measures  if  unexpected  deviations  from  the  projections
are  detected  is  particularly  welcome,  as  current  devel(cid:220)
opments  in  pension  expenditure  give  some  reason  for
concern.  Moreover,  the  Council  underlines  that  the
expected  increase  in  the  ratio  of  pension  outlays  to  GDP
after  2003  will  weaken 
financial
position  in  the  medium  term.  Therefore,  the  Council
encourages  the  Italian  authorities  to  re(cid:220)assess  the  reform
of  the  pension  system.

the  Government’s 

The  Council  notes  that  the  envisaged  medium(cid:220)term
deficit  target  of  1(cid:216)%  of  GDP  in  2001  would  allow  Italy,
in  the  event  of  a  normal  cyclical  downturn,  to  let  the
automatic  stabilisers  work  without  any 
large  risk  of
exceeding  the  3(cid:216)%  of  GDP  reference  value.  In  this  sense
it  is  compatible  with  the  requirements  of  the  Stability  and
Growth  Pact.  However,  a  lower  deficit  would  be  recom(cid:220)
mended,  notably  in  order  to  accelerate  the  reduction  in
the  debt  ratio.  The  Council  also  takes  note  that  Italy
intends  to  meet  these  requirements  fully  by  the  year
2002.

COUNCIL  OPINION

of  8  February  1999

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

(1999/C  68/02)

THE  COUNCIL  OF  THE  EUROPEAN  UNION,

HAS  DELIVERED  THIS  OPINION:

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  Economic  and  Financial  Committee,

On  8  February  1999  the  Council  examined  Portugal’s
Stability  Programme  which  covers  the  period  1999(cid:220)2002.
The  programme  envisages  a  decline 
in  the  general
government  budget  deficit  to  0,8(cid:216)%  of  GDP  by  2002,
while  the  gross  debt  ratio  is  expected  to  decrease  to
53,2(cid:216)%  of  GDP.  The  Council  notes  with  satisfaction  that
the  programme  builds  on  the  budgetary  consolidation
realised 
in  the  run(cid:220)up  to  EMU  and  commends  the
regular  achievement  of  better(cid:220)than(cid:220)targeted  budgetary
outcomes.  The  Council  notes,  however,  that  in  1998,  in
view  of  the  above  trend  growth  and  a  strong  fall  in
interest  payments,  only  a  small  reduction  in  the  budget
deficit  was  achieved.

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

The  central  macroeconomic  scenario  underlying 
the
programme  assumes  output  growth  to  decline  from  its

11.3.1999

EN

Official  Journal  of  the  European  Communities

C  68/3

current  high  rate  towards  growth  close  to  trend  during
the  latter  part  of  the  projection  period.  The  Council
considers  that  this  scenario  appears  plausible  but  notes
that  there  are  risks.  On  the  one  hand,  short(cid:220)term
downside  risks  are  related  to  the  current  international
economic  situation.  On  the  other,  the  regime  change
implied  by  monetary  union  will  continue 
to  exert
substantial  expansionary  effects  which  should  lead  to
stronger  domestic  demand,  allowing  Portugal  to  catch
up  faster.  To  secure  such  a  development,  inflationary
pressures,  which  could  turn  out  stronger  than  expected,
should  be  resolutely  addressed  by  economic  policy,  in
particular 
further  wage
policy 
moderation.

budgetary 

and 

The  Council  notes  that  the  envisaged  medium(cid:220)term
deficit  target  of  0,8(cid:216)%  of  GDP  would  allow  Portugal,  in
the  event  of  a  normal  cyclical  downturn,  to  let  the
automatic  stabilisers  work  without  any 
large  risk  of
exceeding  the  3(cid:216)%  of  GDP  reference  value.  In  this  sense
it  is  compatible  with  the  requirements  of  the  Stability  and
Growth  Pact.  A  wider  safety  margin  could  be  advocated
to  provide  for  unforeseen  shocks  in  economic  activity  or
in  government  finances.  The  Council  welcomes 
the
commitment  of  the  Portuguese  authorities  to  undertake
if  necessary.  The
the  appropriate  corrective  actions 
Council  notes,  moreover,  that  in  view  of  the  current  high
level  of  economic  activity  in  Portugal  a  faster  decline  in
the  deficit  ratio  would  have  been  compatible  with  the
Council’s  declaration  of  1  May  1998.  Such  an  option
would  also  have  been  preferable  under  the  aspect  of  a
balanced  macroeconomic  policy  mix.  The  Council
supports, 
the  Portuguese  Government’s
emphasis  on  the  role  of  investment,  particularly  in  infra(cid:220)
structure,  in  its  overall  goal  of  real  convergence  and
welcomes  the  fact  that  that  government  investment  is
kept  at  high  and  rising  levels  over  the  planning  horizon.

however, 

The  Council  acknowledges  the  need  of  a  catching(cid:220)up
country  like  Portugal  to  expand  expenditure  in  areas
which  are  essential  to 
its  development,  such  as  the
upgrading  of  its  human  capital  and  infrastructure.  To
match  this  need  for  additional  expenditure  in  these  areas
with  the  requirements  of  sound  government  finances,  the
Council  invites  the  Portuguese  Governement  to  finance
them  through  savings  in  other  areas.

A  critical  element  of  the  government  strategy  is  that  the
envisaged  budgetary  consolidation  is  predominantly  due
to  an  increase  in  current  revenue  while  the  contribution
of  expenditure  will  be  comparatively  small.  The  increase
in  revenue  will  be  the  result  primarily  of  continued
efforts  to  improve  the  tax  administration.  The  Council
considers  it  appropriate  that  the  Portuguese  Government
seeks  to  exploit  the  room  that  still  exists  to  enhance  the
efficiency  of  the  tax  administration  while  continuing  to
increases.  The  Council  notes,
avoid  discretionary  tax 
nevertheless,  that  a  budgetary  consolidation  based  on
current  primary  expenditure  restraint  compatible  with  the
priorities  of  the  Portuguese  Government  would  have
been  more  in  keeping  with  its  Recommendations(cid:216)(˛)  on
the  Broad  Economic  Policy  Guidelines  of  the  Member
States  for  1998.

The  Council  welcomes 
the  planned  budgetary  and
in  the
structural  reform  measures  that  are  outlined 
programme.  The  envisaged  reform  measures  appear
appropriate  and  in  line  with  the  Recommendation  on  the
Broad  Economic  Policy  Guidelines.  The  Council
implement
encourages  the  Portuguese  Government  to 
the  reforms  expeditiously  and  effectively  as  this  will  be
crucial  for  the  achievement  of  the  goals  set 
in  the
stability  programme.

(˛)(cid:217)OJ  L  200,  16.7.1998,  p.  34.