Council Opinion of 12 March 2001 on the updated stability programme of Spain, 2000-2004
Date: 2001-03-12
Institutions: Council of the European Union
Subjects: Economic and Monetary Union, Spain, economic policy, economic stabilisation, gross domestic product

10.4.2001

EN

Official Journal of the European Communities

C 109/3

COUNCIL OPINION

of 12 March 2001

on the updated stability programme of Spain, 2000-2004

(2001/C 109/03)

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 coordination of economic
policies (1), and in particular Article 5(3),

Having regard to the recommendation of the Commission,

After consulting the Economic and Financial Committee,

HAS DELIVERED THIS OPINION:

On 12 March 2001 the Council examined Spain’s updated
stability programme which covers the 2000-2004 period.
The Council notes that the programme reaffirms the strategy
adopted in the two previous programmes: promoting healthy
economic growth through fiscal consolidation and structural
reforms. Notwithstanding, the update has the same lack of
information found in the two previous programmes, which
the assessment of both the macro-
makes more difficult
economic
the underlying
budgetary position. This
information should be
corrected in future updates.

scenario and the

estimate of

lack of

The programme’s objectives are to turn the estimated 2000
general government deficit of 0,3 % of GDP into a balance in
2001 and a surplus of 0,3 % in 2004, while the debt ratio falls
to 49,6 % of GDP at the end of the forecast period.

The Council welcomes the overall record of implementation of
the previous update. GDP has grown more briskly than
expected along with strong job creation, while general
government balance and debt targets have been overachieved.
Nevertheless, recent price developments have been worse than
expected, reflecting increasing core inflation stemming from
factors. The
strong domestic demand as well as external

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

Council therefore considers essential that wage growth should
be compatible with price stability. The Council recommends
that wage indexation be phased out. It also recommends that
if inflationary pressures should persist, the Spanish authorities
should tighten fiscal policy further.

The macroeconomic scenario considered in the updated
programme assumes output growth will decelerate from its
present high rate (4,0 % in 2000) to 3,6 % in 2001 and to
slightly below trend over the period 2002-2004 (3,2 % on
average). Although for 2001 recent developments may point
to a weaker outturn, the Council notes that this medium-term
macroeconomic scenario appears broadly realistic overall.

The update continues with the successful budgetary strategy
based on the restraint of primary current expenditure, which
will allow for a reinforcement of government investment and
for a reduction in the tax burden through a fiscal reform in
2002. Fiscal policy can be considered mildly restrictive over the
the government
period. As the envisaged strengthening of
balance is based on expenditure restraint, the Council reiterates
its encouragement for the approval of appropriate instruments,
such as the proposed law of budgetary stability, to reinforce
control of public spending at various levels of government. In
turn, the Spanish authorities should be prepared to consider
measures to offset the budgetary impact of the recent court
ruling on civil servant wages in the event that this ruling is
upheld on appeal.

The underlying budgetary position from 2001 should provide a
sufficient safety margin to prevent the deficit from breaching
the 3 % of GDP threshold during a normal cyclical downturn.
The safety margin will increase further after 2001. The Council
therefore considers that the updated stability programme is in
conformity with the provisions of
the stability and growth
the
pact. The Council considers the envisaged widening of
safety margin is justified in order to cope with the budgetary
consequences of ageing. In this respect, the Council welcomes
the commitment made by the Spanish authorities to allocate
the expected social security surpluses to further increase the
social security reserve fund created in 2000. The Council notes
that as recommended in the 2000 broad economic policy
guidelines this fund was reinforced in 2000. Nonetheless, the
to tackle the
update does not provide additional
the
long-term sustainability of public finances in view of
ageing population. The Council recommends the Spanish auth-
orities to adopt new measures in order to ensure the viability
the public pension system, and would welcome greater
of
attention to the issue of
long-term sustainability in future
updates.

steps

C 109/4

EN

Official Journal of the European Communities

10.4.2001

the

increasing role of

The Council considers that the budgetary adjustment should be
facilitated by its being shared by all levels of government, and
in particular notes with satisfaction that
territorial
governments are targeted to be in balance from 2001 on.
in
territorial governments
Given the
various categories of expenditure (notably investment),
this
requires the continued effective functioning of
the existing
coordination between general government sub-sectors, which
should be reinforced through the appropriate instruments
the proposed law of
under domestic discussion,
budgetary
the
also welcomes
The
commitment
to apply any better-than-expected budgetary
results of central government to public debt redemption.

such as
Council

stability.

The Council considers that the programme is consistent with
the broad economic policy guidelines. The Council notes with
approval
the importance given in the update to structural
policies. Structural reforms play an important role in increasing
the Spanish economy while easing
the potential output of
inflationary pressures. The Council, therefore, encourages the
Spanish Government
the envisaged structural
reforms, which must be closely monitored and speeded up
and reinforced if necessary.

to implement

COUNCIL OPINION

of 12 March 2001

on the updated stability programme of Portugal, 2001-2004

(2001/C 109/04)

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 coordination of economic
policies (1), and in particular Article 5(3) thereof,

Having regard to the recommendation of the Commission,

After consulting the Economic and Financial Committee,

HAS DELIVERED THIS OPINION:

On 12 March 2001 the Council examined the updated stability
programme of Portugal which covers the period 2001-2004.
the present update maintains the
The Council notes that
budgetary targets of the previous programme update, i.e. the
general government balance is projected to improve from an

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

estimated deficit of 1,4 % of GDP in 2000 to a balanced
position in 2004, while the general government consolidated
gross debt should be brought to below 50 % of GDP by the
end of the programme period. The present update assumes
annual average output growth of 3,25 % over the period
2001-2004, which is slightly below the growth projections of
the previous programme update.

Regarding the budgetary implementation in 2000, the Council
notes that overruns in current primary expenditure and lower
than estimated revenues from mineral oil taxes (0,5 % of GDP)
were only partially offset by lower than projected capital
expenditure and higher than budgeted tax revenues in some
areas (income taxes, VAT). The deficit target of 1,5 % of GDP
was achieved only because of the proceeds from the sale of
Universal Mobile Telecommunications System (UMTS) licences,
which were not initially budgeted and amounted to 0,4 % of
GDP. The overruns in current primary expenditure in 2000
were not
in line with the 2000 broad economic policy
guidelines in so far as these recommended strict adherence to
the budgetary target through tight expenditure restraint. The
Council notes with concern that such overruns have been a
feature of the budgetary implementation in earlier years. The
Council further notes that the underlying budgetary position,
net of UMTS proceeds, has hardly changed from 1999 to 2000.
This appears inappropriate in the current conditions of excess
demand in the Portuguese economy and in view of the need to
achieve a budgetary position in line with the stability and
growth pact, both of which call
for a tighter budgetary
stance, as advocated by the broad economic policy guidelines.