Council Opinion of 12 February 2002 on the 2001 update of Ireland's stability programme, 2002-2004
Date: 2002-02-12
Institutions: Council of the European Union
Subjects: Ireland, economic stabilisation

C 51/2

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Official Journal of the European Communities

26.2.2002

The Council urges the German authorities to ensure strict
budgetary implementation at all
levels of government. As
shown once again by the budgetary outcomes for 2001, this
will be crucial to attain the projected deficit targets. While the
Council welcomes the recently implemented change to the law
on budgetary principles, stating that all levels of government
should contribute to the achievement of
the medium-term
budgetary targets, the mechanism enshrined therein is not yet
sufficient
to guarantee compliance with mutually agreed
objectives by all levels of government. The Council therefore
welcomes the intention of the federal government, through
agreements with the regional authorities,
to make every
effort to ensure that the abovementioned budgetary objectives
are met.

The Council notes with satisfaction that the German authorities
will continue in their efforts to bring the debt level down
below the Treaty’s reference value. However,
in view of the
significant pressures for increased public spending due to an
ageing population, the slow decline in the debt ratio remains a
source of concern given the need to ensure the sustainability of
If debt reduction is to make a noticeable
public finances.

contribution towards meeting the budgetary cost of ageing
populations, a balanced budget position must be reached as
soon as possible. In addition to intensified budgetary consoli-
dation efforts the recently implemented reform of the pension
system is a step in the right direction. This needs to be comple-
mented by structural reforms geared towards a rise in labour
market participation rates, particularly of women and older
workers. Such measures
soon as
possible, given that the budgetary impact of ageing populations
will take hold soon.

should be enacted as

The 2001 update does not contain projections on the
long-term sustainability of public finances in line with the
revised code of conduct. The programme provides detail on
the recent pension reform. While these reforms are a step in
the right direction,
further reforms may be needed in the
future. Raising employment rates, especially amongst women
and older workers, will form a key part of any overall strategy
to prepare for ageing populations. The key challenge facing
Germany is to achieve a position of budget balance and
thereafter to sustain it over the very long-run.

COUNCIL OPINION

of 12 February 2002

on the 2001 update of Ireland’s stability programme, 2002-2004

(2002/C 51/02)

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 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 February 2002 the Council examined the 2001 update
Ireland’s stability programme, which covers the period
of

(1) OJ L 209, 2.8.1997.

2002-2004. The update broadly complies with the revised
(cid:145)code of conduct on the content and format of stability and
convergence programmes(cid:146) (2), although some data are not in
line with EU standards. The Council notes that the macro-
economic scenario in the update envisages a deceleration
from record real GDP growth of 11,5 % in 2000 to just
under 7 % in 2001 followed by below 4 % in 2002 and a
recovery to Ireland’s medium-term sustainable growth rate of
about 5 to 6 % thereafter.

The general government surplus for 2001 is expected to be
close to 1,5 % of GDP, more than 2,5 percentage points lower
than budgeted, and this is largely blamed on the economic
downturn. The Council regrets that
this under-performance
has apparently resulted in a downward shift in the projected
path for the general government balance in the new update
from 2002 onwards. The Council notes that the budgetary
path in the new update does not
follow the previous
approach of high surpluses and a further reduction of the
debt ratio. The update targets a surplus of 0,7 % of GDP in
2002 (0,2 % of GDP excluding the transfer from the Central

(2) Revised Opinion of the Economic and Financial Committee on the
content and format of stability and converge programmes, endorsed
by the Ecofin Council on 10.7.2001.

26.2.2002

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Official Journal of the European Communities

C 51/3

Bank, which seems unlikely to qualify as a credit item) and
small deficits in 2003 and 2004 of 0,5 % and 0,6 % of GDP
respectively. The debt ratio is expected to broadly stabilise at
the very low level of 34 %. The Council notes with concern
that the move to a small deficit in 2003-2004 coincides with
the recovery to the medium-term sustainable growth rate.
However, the Council acknowledges that these deficits incor-
porate
for
unspecified future budget measures and increasingly large
contingency provisions (cid:145)against unforeseen developments(cid:146).

conditional

provisions(cid:146)

important

(cid:145)technical

ratio

The Council observes that, according to the projections in the
stability programme, the overall revenue ratio falls over the
period (in spite of a broadly stable tax burden), while the
(including
expenditure
increase
a
shows
contingency provisions). The Council notes that
the recent
rates of increase in current and capital spending, motivated
by a desire to tackle infrastructural needs and public service
deficiencies, cannot be sustained without appropriate action on
the revenue side.

steady

While the Council
found that the budgetary projections in
previous stability programmes fully respected the requirements
of the stability and growth pact, it notes with concern that the
projections in the new update,
including their evaluation in
cyclically-adjusted terms, might not respect the close-to-balance
In the event that the
requirement of the pact from 2003.
contingency provisions
for
2003-2004 are not used, the close-to-balance objective would
be broadly respected throughout the programme period. The
therefore urges the Irish authorities to ensure that
Council
the
is
compliance with the pact
programme period. The Council notes that there is a margin
to avoid breaching the 3 % of GDP deficit threshold throughout
the programme period.

continued throughout

incorporated in the

targets

recalls

that, on 6 November 2001,

in its
The Council
conclusions on economic and budgetary developments
in
Ireland in the wake of the Recommendation of 12 February
2001 (1), it had stressed the need for continued vigilance on the
fiscal stance, given the experience of overheating. In particular,
it had advocated a broadly neutral budget for 2002. Based on
the change in the
the targets in the updated programme,
cyclically adjusted balance for 2002 points
to a broadly
neutral fiscal stance,
in line with its November conclusions.
The Council notes that the targeted outcome for the general
government balance in 2002 is subject to a number of risks.
The Council urges the Irish authorities to ensure that
the
budgetary stance for 2002 is broadly neutral.

The Council welcomes further progress in the important areas
of tax reform and infrastructural investment to relieve supply
constraints, as described in the update. However, it regrets that
the new update does not present any plans to introduce a
to
medium-term framework to guide public spending or
improve expenditure control. The Council recommends that
the
as
requested in the broad economic policy guidelines agreed for
2001.

Irish authorities

issues urgently,

address

these

The Council considers that Ireland is in a good position to
meet the budgetary costs of ageing populations. However, the
long-term sustainability of public finances should not be taken
for granted as public spending on pensions and health care is
expected to rise significantly in coming decades. The move
if confirmed,
towards a structural deficit in the programme,
would imply a halt
in the
to the recent
long-term sustainability of the public finances. The Council
nevertheless notes with satisfaction the broad-based strategy
to prepare for ageing populations, and in particular that 1 %
of GNP continues to be set aside as the annual contribution to
the National Pensions Reserve Fund.

strong gains

(1) OJ L 69, 10.3.2001